It’s a lazy Sunday afternoon. You’re sipping coffee, scrolling through home renovation ideas on your phone. Suddenly, it hits you – that dream kitchen remodel doesn’t have to remain a dream. But your savings account is looking slim, and your credit card limit won’t cover even half the cost.
You type into Google: “Home Equity Line of Credit” and if you’re lucky, you land here.
Why lucky?
Because our team is committed to cutting through the financial jargon and providing you with honest, straightforward advice on HELOCs.
And here’s a further disclosure: in the vast sea of HELOC offers, we’ve done the heavy lifting to bring you only the most reputable lenders and the best rates available in December 2024.
Whether you’re planning a home renovation, consolidating high-interest debt, or need funds for an unexpected expense; a home equity line of credit can be a game changer.
Our Picks for Best Home Equity Lines of Credit in December 2024
Best Overall: Bank of America
Offers competitive rates, no application or closing fees, and rate discounts for existing customers.
Best for Low Fees: U.S. Bank
No closing costs and flexible repayment terms make this an affordable option for many homeowners.
Best for Long Draw Period: Connexus Credit Union
Features a generous 15-year draw period and low introductory rates.
Best for High Loan Amounts: PenFed Credit Union
Offers HELOCs up to $1 million with competitive rates and discounted closing costs.
Best for Fast Approval: Figure
Provides a streamlined online application process with potential approval in minutes.
What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home’s equity. Unlike a traditional home equity loan that provides a lump sum, a HELOC allows you to borrow as needed up to a predetermined credit limit, similar to a credit card.
Key Features of HELOCs:
- Flexible borrowing: Draw funds as needed during the draw period
- Lower interest rates compared to unsecured loans or credit cards
- Interest may be tax-deductible (consult your tax advisor)
- Variable interest rates that can fluctuate with market conditions
- Your home serves as collateral for the loan
How HELOCs Work
A HELOC typically consists of two phases:
- Draw Period: Usually 5-15 years, during which you can borrow up to your credit limit. You’ll generally only pay interest on the amount borrowed.
- Repayment Period: Usually 10-20 years, where you repay both principal and interest on the borrowed amount.
Most lenders allow you to borrow up to 85% of your home’s value, minus your outstanding mortgage balance. This is known as the combined loan-to-value (CLTV) ratio.
Example HELOC Calculation:
Home Value: $400,000
Outstanding Mortgage: $250,000
85% of Home Value: $340,000
Potential HELOC Amount: $340,000 – $250,000 = $90,000
HELOCs vs. Other Home Equity Options
To help you understand if a HELOC is the right choice, let’s compare it to other home equity borrowing options:
| Feature | HELOC | Home Equity Loan | Cash-Out Refinance |
|---|---|---|---|
| Interest Rate | Variable | Fixed | Fixed |
| Funds Disbursement | As needed | Lump sum | Lump sum |
| Repayment Terms | Interest-only during draw period, then principal + interest | Fixed payments over 5-30 years | New mortgage terms (15-30 years) |
| Best For | Ongoing expenses, flexible borrowing needs | Large, one-time expenses | Lowering overall mortgage rate |
Current HELOC Rates and Trends
As of December 2024, HELOC rates are averaging around 8.45% APR, with expectations to potentially decrease by the end of 2024. However, rates can vary significantly based on factors such as credit score, loan amount, and lender.
Factors Affecting HELOC Rates:
- Credit score (aim for 700+ for best rates)
- Combined loan-to-value (CLTV) ratio
- Debt-to-income ratio
- Current market conditions
- Relationship with the lender
Top HELOC Lenders in 2024
Here’s a comparison of some of the best HELOC lenders based on our research:
| Lender | APR Range | Key Features |
|---|---|---|
| Bank of America | Starting at Prime + 0.75% | Discounts for existing customers, no application or closing fees |
| U.S. Bank | 8.95% – 13.1% | No closing costs, flexible repayment terms |
| Connexus Credit Union | Starting at 7.56% | Low introductory rates, 15-year draw period |
| PenFed Credit Union | Starting at Prime + 0.99% | Discounted closing costs, high maximum loan amounts |
Remember to shop around and compare offers from multiple lenders to find the best HELOC for your needs.
How to save $619.00 on your loan
The price difference for a $500.00 loan in 90 days is $619.00.
Pros and Cons of HELOCs
Flexible access to funds as needed
Lower interest rates compared to credit cards or personal loans
Interest may be tax-deductible for home improvements
Only pay interest on the amount borrowed
Potential for rate drops in 2024
Pros of HELOCs
Variable interest rates can lead to payment fluctuations
Risk of overspending due to easy access to funds
Your home is used as collateral, risking foreclosure if you default
Potential for higher rates if market conditions change
Some lenders charge annual or inactivity fees
Cons of HELOCs
How to Choose the Best HELOC
Steps to Find the Best HELOC
Follow these steps to secure the best HELOC for your needs:
Check Your Credit Score
Aim for a score of 700 or higher for the best rates.
Determine Your Home’s Equity
Calculate your CLTV ratio to understand how much you can borrow.
Shop Around
Compare offers from at least 3-5 lenders, including banks, credit unions, and online lenders.
Consider Introductory Offers
Look for low introductory rates, but be aware of how rates may change after the promotional period.
Review Fee Structures
Pay attention to annual fees, closing costs, and early termination fees.
Understand Repayment Terms
Consider the length of the draw and repayment periods, and how payments may change over time.
Read the Fine Print
Carefully review all terms and conditions before signing.
Common Uses for HELOCs
HELOCs can be versatile financial tools. Here are some common uses:
- Home improvements and renovations
- Debt consolidation
- Education expenses
- Emergency fund or major purchases
- Business startup costs
Tip:
While HELOCs offer flexibility, it’s crucial to have a clear purpose and repayment plan before borrowing against your home’s equity.
Frequently Asked Questions
HELOC FAQs
What credit score do I need for a HELOC?
While requirements vary by lender, a score of 700 or higher will typically qualify you for the best rates. Some lenders may approve HELOCs for scores as low as 620, but with higher interest rates.
Can I use a HELOC for anything?
Yes, you can use HELOC funds for any purpose. However, using the funds for home improvements may provide tax benefits. Always consult a tax advisor for specific advice.
How much can I borrow with a HELOC?
Most lenders allow you to borrow up to 85% of your home’s value minus your outstanding mortgage balance. Your credit score and income will also factor into the approved amount.
Are HELOC interest rates expected to decrease in 2024?
While it’s difficult to predict with certainty, some experts anticipate HELOC rates may decrease slightly by the end of 2024. However, rates remain subject to market conditions and Federal Reserve policies.
How does a HELOC affect my credit score?
Opening a HELOC may cause a slight, temporary dip in your credit score due to the hard inquiry. However, responsible use and timely payments can positively impact your credit over time.
Home Equity Lines of Credit can be powerful financial tools when used responsibly. They offer flexibility, potentially lower interest rates, and access to substantial funds based on your home’s equity. However, it’s crucial to understand the risks, shop around for the best rates, and have a clear repayment strategy.
As you consider whether a HELOC is right for you in 2024, remember to assess your financial goals, compare offers from multiple lenders, and consult with financial advisors if needed. With careful planning and responsible borrowing, a HELOC can be an excellent way to leverage your home’s equity for your financial needs.
