Are variable HELOC rates too risky now? Experts weigh in
Home equity lines of credit (
HELOCs
) are quickly becoming one of the most affordable ways homeowners can borrow money these days. Not only have
HELOC rates
fallen overall since the start of 2025, but they're also
down considerably over the last year or so
, falling from averages near 10% to the
8% point
they sit at today.
These
lower rates
have benefitted new borrowers and existing HELOC holders alike — allowing both to reduce their interest and monthly payments with every dip that occurs. But as the old adage says, "What goes up, must come down."
And with HELOCs'
variable rates
, that means HELOC costs could rise, too. Does this make them too risky to take on?
Compare today's top home equity borrowing options online now
.
Here's when experts say they might be too risky — and when you're typically good to go.
Since HELOCs have variable rates, when overall interest rates change, so do the rates on existing HELOCs. That can be good in times like this — or if markets expect
HELOC rates to fall further
in the future.
But those trends can be hard to predict. So to
borrow a HELOC safely
, experts say you'll want to understand the nitty-gritty details of your loan first — specifically, its rate caps, which determine how much your rate can rise or fall in any given time and over the life of your HELOC.
"You need to know what the payment will look like if you fully draw out — or use all of — the HELOC at the maximum possible rate," says Mason Whitehead, producing branch manager at Churchill Mortgage in Dallas. "Understanding what the payment would be in that worst-case scenario is important."
If you can handle that absolute maximum payment, then a HELOC could be safe for you to take out. Having "stable income, a low debt-to-income ratio and adequate savings reserves" can make a HELOC a safer bet, too, according to Chuck Bowman, retail and business banking division director at Amegy Bank of Texas.
"Build an emergency fund to cover higher payments if interest rates rise unexpectedly," Bowman says. "Aim to save enough to cover a few months' worth of HELOC payments, and regularly monitor interest rates and market trends to anticipate potential increases."
Find out how much a HELOC could cost you today
.
If you have unpredictable income, lots of debt or are low on savings, a HELOC with a variable interest rate is likely too big a risk for your finances, experts say.
"A variable-rate HELOC can be risky, especially if you have a high debt-to-income ratio, meaning you already owe a lot compared to your income," Bowman says. "If your job situation is uncertain or your income varies greatly, managing variable payments can also be a challenge."
Additionally, if you're on the cusp of
qualifying for a HELOC
, "that can be a big risk," too, Whitehead says.
"What I tell a lot of clients is, 'Just because you can qualify, doesn't mean you should,'" Whitehead says. "Consider what the payment could be if the rate went up 2%, just to be sure you are okay with what that payment looks like."
How you plan to use the HELOC plays in, too. For instance, using your HELOC funds to improve your home and add value to it is less risky than using the money to pay off debts — particularly if you haven't tackled the issues that led to racking up debt in the first place.
"A big risk comes when you use a HELOC to pay off consumer debts, like credit cards or personal loans," Whitehead says. "Trading one debt for another may lower the monthly payment, but it's the behavior that has to change or else you will just end up back in credit card debt again — and you'll also have a HELOC."
If you do opt to move forward with a HELOC, make sure you run the numbers. Know what your absolute highest payment could be, and have a plan for how you'd handle that from a budget standpoint.
"Plan for rate changes in advance — prior to borrowing — and model out increases to ensure you can afford the loan at higher interest rates," says Jason Fannon, a senior partner and certified financial planner at Cornerstone Financial Services in Novi, Mich. "The planning needs be completed in advance."
And if you want to reduce your risk even more, shop around for a fixed-rate HELOC. Some lenders offer these or, in many cases, you may be allowed to secure a fixed rate on a portion of your credit line, which can reduce your exposure to rate and payment fluctuations, too.
There are also
home equity loans
, which typically come with a
fixed interest rate
, or you can explore a cash-out refinance if the conditions are right. Talk to a mortgage professional if you're not sure which is the right move for you.
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First, home equity loans come with fixed rates, giving you a set payment for the entire loan term. HELOCs, on the other hand, usually have variable interest rates, which can go up or down depending on the market. "HELOCs will often utilize variable interest rates that adjust based on the index they are tied to," says Scott Bridges, chief consumer direct lending production officer at PennyMac. "This means your payment may fluctuate over time." As far as which product you should get, it depends on your goals, experts say. "HELOCs are a good option for ongoing costs or projects where expenses may vary," Bridges says. "Home equity loans are better suited for those that want their cash all at once, where you know the amount needed for debt consolidation, major expenses, or home renovations." Compare your HELOC and home equity loan options here to learn more. How much can I borrow? How much you can borrow will depend on the lender you choose, but typically, you can take out somewhere between 80 to 90% of your home's value, minus your current mortgage balance. So, if your home is worth $400,000 and you have a mortgage balance of $150,000, you could potentially borrow around $210,000 using a home equity loan or HELOC (400,000 x .90 - $150,000). "The exact amount depends on your credit score, income, and lender guidelines," says Brett Schiffer, chief credit officer at CrossCountry Mortgage. John Aguirre, a mortgage originator at Loantown, works with his equity clients to "come up with a thorough plan" before determining how much they should borrow, he says. "It's a plan that outlines how much they need, plus a small pad for unforeseen expenses that arise," Aguirre says. What are the rates and fees? Like all mortgage products, the interest rate you will get on a home equity loan or HELOC will depend on your financial details, as well as the value of your house. Historically, home equity loans have had lower interest rates than HELOCs, though that hasn't been the case in the last few months. Either way, "To qualify for the lowest rates, a credit score of 740 or above is ideal," Schiffer says. "Also, having a lower loan-to-value ratio, meaning more equity in your home, can help you secure a better rate. In general, shorter loan terms also tend to come with lower interest rates." Both home equity loans and HELOCs can come with closing costs, often equaling somewhere between 2 and 5% of the loan amount. Some lenders may waive closing costs for HELOCs, though they often come with a higher interest rate or other trade-offs in return. Some HELOCs may also have annual and draw fees that Bridges advises borrowers to look for, too. What can I use the money for? Technically, you can use the funds from a home equity loan or HELOC for virtually anything. "One of the biggest advantages of a home equity loan is its flexibility," Schiffer says. "Common uses include paying off high-interest debt, taking care of emergency expenses, renovation projects, financing a child's college education, paying for a wedding, buying a car, and increasing funds in savings and retirement accounts." Some borrowers even use the money to purchase additional properties. "We're seeing many clients use home equity lines to cover down payments and closing costs on investment properties," Schiffer says. "This effectively leverages their home equity to build a portfolio of income-generating real estate." Know the risks Home equity loans and HELOCs can be affordable ways to borrow cash, but make sure you're prepared for the payments they come with before taking one out. With home equity products, your home serves as collateral, so if you miss payments, your lender could file for foreclosure and seize your house. If you're not sure a home equity loan or HELOC is the right move for your finances, talk to a mortgage professional or financial advisor first. They can help you make the right decision for your specific situation. Learn more here now.
