How Are HELOC Interest Rates Determined?

• Author: Kelly Cooke
• Posted: 2024-11-10

You've probably seen advertisements for HELOCs that say the interest rate is prime minus 1%. However, these rates don't last long, and they're generally subject to change after a year or two. HELOC interest rates are linked to prime, which means that they'll go up or down depending on the Federal Reserve's decisions. Additionally, your credit score plays a role in your HELOC interest rate, so good credit is a good idea if you want the best deal.

The best HELOC rate depends on your credit score, so be sure to check yours before you apply. A credit score of 740 or higher is recommended for the lowest rates. If you have less than perfect credit, you'll need to work on improving it before applying. Research ways to improve your score and try to negotiate prices. Never be afraid to ask for a lower rate. Your credit score is a major factor in your HELOC rate, so take the time to improve it!

One thing to keep in mind when applying for a HELOC is that there are two periods for the loan - the draw period and the repayment period. The draw period is the time you can use your HELOC to pay off any outstanding balance, while the repayment period is ten or twenty years. When the draw period ends, you'll owe the bank the balance from Year 10. Then, you'll need to make payments on the principal amount based on the number of months remaining in the repayment period.