How do changing HELOC rates impact current borrowers?
HELOCs
) have been in a steady decline since the fall of last year. In fact, rates are now averaging
around 8%
—
down significantly
from their almost 10% peak seen in September of last year.
But
home equity borrowing rates
won't always be falling. While these are positive trends for existing HELOC holders and new borrowers right now, the tides could turn, and
HELOCs' changing rates
could pose a problem for consumers.
What exactly does the volatility of HELOC rates mean for borrowers? And how should that inform your decision to take out a HELOC — or avoid one?
Start comparing today's top home equity borrowing rates
.
Here's what experts say about how changing HELOC rates can impact current borrowers.
With HELOCs, this is the best-case scenario — and it's what consumers are seeing right now: Declining rates and, subsequently, declining monthly payments.
It's not always a one-for-one decline. HELOC rates are typically based on the prime rate, plus a margin, which can vary depending on your lender and financial profile. They also don't all adjust at the same pace.
"There are a lot of different HELOC programs. Some float monthly, meaning your rate can adjust every month. Some only adjust periodically, such as quarterly, and some are fixed for up to 30 years," Mason Whitehead, producing branch manager at Churchill Mortgage in Dallas, explains.
In that latter scenario (with a fixed-rate HELOC), falling HELOC rates wouldn't impact your rate or payment at all.
"It's important to understand what type of fixed period, if any, you are getting," Whitehead says. "Know how often it will adjust."
Compare your home equity borrowing options online now
.
Unfortunately,
HELOC rates can also rise
, which would send the rate and payment up on new and existing variable-rate HELOCs, too.
The good news is that despite what the prime rate does, HELOC rates can't jump substantially in any one period. Lenders will set rate caps for your loan, establishing a maximum increase in each adjustment period and a maximum rate for the entire HELOC term.
"It's possible that monthly payments could increase should market conditions change," says Chuck Bowman, retail and business banking division director at Amegy Bank of Texas. "When considering taking on a HELOC, it's important to be aware of rate caps, which set a limit on how high a borrower's interest rate can go. Rate caps can offer some protection against higher payments."
For example, your rate may be able to increase by no more than one percentage point per year and five percentage points across the full term. These numbers should be detailed in your loan documents, so use them to calculate what your absolute maximum payment could be and see how that fits in with your budget.
"The key with HELOCs — and essentially any debt — is to understand the worst-case scenario and make sure your budget allows that," Whitehead says.
Since HELOC rates can rise or fall, changing your monthly payment with them, their biggest risk lies in their unpredictability.
"HELOC borrowers are typically notified of rate changes through their monthly statements," Bowman says. "This means you find out about the new interest rate and upcoming payment each month. While this keeps borrowers informed, it doesn't always give ample time to adjust budgets."
To make sure you're protected, run the numbers and figure out the highest payment you might owe — and make sure you can still handle that. You should also have
some emergency savings
on hand just in case.
"Typically, the rates can change month to month which means the notification period on a rate change is 15 to 30 days," says Jason Fannon, a senior partner and certified financial planner at Cornerstone Financial Services in Novi, Mich. "This is difficult to plan for, which is why the borrower needs to run several scenarios — at higher interest rates — prior to obtaining the loan."
Another option is to choose a lender that offers fixed-rate HELOCs or HELOCs with fixed-rate lock options. These allow you to fix the interest rate on a portion of your credit line at varying intervals throughout the loan term. This can be particularly helpful if you plan to use a large chunk of your credit line (which would mean even bigger fluctuations in payments if rates change).
"If you plan to take a large advance on the line of credit, then how long do you expect to take to pay it back?" asks Tom Parrish, managing director of consumer lending product management at BMO Bank. "If it's over a long period of time, you may want to consider locking in a fixed rate and fixed payment to minimize any interest rate risk."
You can also explore
home equity loans
, which have fixed interest rates (even though they may be slightly higher than HELOC rates right now). If you're not sure which option is best for your needs, talk to a mortgage professional for advice.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNBC
5 hours ago
- CNBC
How to calculate HELOC payments
HELOCs, or home equity lines of credit, give homeowners a way to leverage the growing value of their house for anything from renovations to college tuition — and enjoy 10 years of interest-only payments. Plus, unlike with a home equity loan, they only have to repay what they use, rather than a large lump sum. Rates on HELOCs have been decreasing precipitously since last summer, according to a Bankrate survey: On Aug. 6, 2025, the average was 8.13% for a $30,000 HELOC, compared to 8.25% for the same-sized home equity loan. Thinking about a HELOC? Here's how to calculate your payments during both the draw and repayment periods. A HELOC is a revolving line of credit secured by the borrower's house. Typically, homeowners have 10 years to draw on the account and only make interest payments. If they do make principal payments during the draw period, though, they can tap that credit again. Once the draw period ends, they'll begin making full principal-and-interest payments during the repayment phase, which usually lasts 20 years. Lenders can approve HELOCs from $10,000 to $100,000, and some will go considerably higher. The funds can be used for any purpose, but the interest is only tax-deductible if the money goes toward home improvements. Since it's a secured loan, interest rates on a HELOC are lower than with other kinds of financing. On Aug. 6, 2025, the average HELOC interest rate was 8.13%, compared to 12.58% for personal loans and 23.99% for credit cards. But being secured also means the lender can foreclose if the homeowner fails to make on-time payments on their HELOC. The monthly payment on a home equity line of credit is determined by the loan amount and the interest rate. It also depends on whether the borrower is in the draw period or the repayment period. We'll illustrate how to calculate both with this example: A homeowner who has withdrawn $45,000 from a HELOC with a fixed 8.3% interest rate, a 10-year draw and a 20-year repayment period. For the first 10 years, the borrower only has to make payments on the interest that's accrued. Here's the equation to use to determine the monthly payment. Interest-only annual payment = amount owed x interest rate ÷ 12 $3,735 = $45,000 x 0.083 ÷ 12 Using the example above, the borrower would owe $3,735 annually during the draw period, or about $311 a month. Calculating payments in the repayment phase requires two equations, one for the total balance and another for the amount due each month. Assume the borrower has remained current on their interest payments and is now starting with a principal of $45,000. First, calculate their total balance owed, including interest: Total balance = principal amount (1+ (interest rate x number of years in repayment)) To calculate your monthly payment, divide the balance owed by the number of monthly payments. (In the case of a 20-year repayment term, there will be 240 monthly payments.) Minimum monthly payment = total balance ÷ months in repayments Divide $119,700 by 240 to get $498.75, the minimum monthly payment for 20 years. Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here. A HELOC is a line of credit backed by the value of a borrower's home. They can withdraw however much they need, up to the maximum credit limit, for 10 years. During that draw period, they only pay interest. Once the draw period ends, they'll begin the repayment phase and make full principal and interest payments for the remainder of the term (typically 20 years). A HELOC is a revolving line of credit, while a home equity loan is a lump sum of funding. With a HELOC, borrowers have 10 years to withdraw from the line of credit, up to its maximum, and during this time, they'll only make interest payments. Then, a 20-year repayment period begins. Borrowers with a home equity loan start making payments as soon as they get the funds, typically for 30 years. If you pay more than the minimum required, you'll pay less in interest over time and earn equity in your home faster. That means you'll get a larger share of the sale price when you sell and your credit score will rise faster, too. If you pay more than the minimum, however, make sure to tell your lender that the funds should go to the principal and not interest. It typically takes two to six weeks to close on a HELOC, but some lenders promise closing in as little as five days. At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Yahoo
11 hours ago
- Yahoo
HELOC rates today, August 19, 2025: Don't wait for a 4% HELOC, get it now
HELOC interest rates remain under 9%. However, introductory home equity line of credit rates are as low as 3.99% APR for six months to one year. Many of the lowest offers we've found are from credit unions. Dig deeper: Is now a good time to take out a HELOC? This embedded content is not available in your region. HELOC rates Tuesday, August 19, 2025 According to Bank of America, the largest HELOC lender in the country, today's average APR on a 10-year draw HELOC is 8.72%. That is a variable rate that kicks in after a six-month introductory APR, which is 6.49% in most parts of the country. The national HELOC rate spread runs from a low of 8.05% APR to a high of 9.59%. Homeowners have a substantial amount of value tied up in their houses — more than $34 trillion at the end of 2024, according to the Federal Reserve. That's the third-largest amount of home equity on record. With mortgage rates lingering in the high 6% range, homeowners are not likely to let go of their primary mortgage anytime soon, so selling the house may not be an option. Why let go of your 5%, 4% — or even 3% mortgage? Accessing some of the value locked into your house with a use-it-as-you-need-it HELOC can be an excellent alternative. How lenders determine HELOC interest rates HELOC interest rates are different from primary mortgage rates. Second mortgage rates are based on an index rate plus a margin. That index is often the prime rate, which today is 7.50%. If a lender added 1% as a margin, the HELOC would have a rate of 8.50%. Lenders have flexibility with pricing on a second mortgage product, such as a HELOC or home equity loan, so it pays to shop. Your rate will depend on your credit score, the amount of debt you carry, and the amount of your credit line compared to the value of your home. And average national HELOC rates can include "introductory" rates that may only last for six months or one year. After that, your interest rate will become adjustable, likely beginning at a substantially higher rate. How a HELOC works You don't have to give up your low-rate mortgage to access the equity in your home. Keep your primary mortgage and consider a second mortgage, such as a home equity line of credit. The best HELOC lenders offer low fees, a fixed-rate option, and generous credit lines. A HELOC allows you to easily use your home equity in any way and in any amount you choose, up to your credit line limit. Pull some out; pay it back. Repeat. Meanwhile, you're paying down your low-interest-rate primary mortgage like the wealth-building machine you are. This embedded content is not available in your region. Look for introductory rates, but be aware of a rate adjustment later Today, FourLeaf Credit Union is offering a HELOC rate of 6.49% for 12 months on lines up to $500,000. That's an introductory rate that will convert to a variable rate later. When shopping lenders, be aware of both rates. And as always, compare fees, repayment terms, and the minimum draw amount. The draw is the amount of money a lender requires you to initially take from your equity. The power of a HELOC is tapping only what you need and leaving some of your line of credit available for future needs. You don't pay interest on what you don't borrow. HELOC rates today: FAQs What is a good interest rate on a HELOC right now? Rates vary so much from one lender to the next that it's hard to pin down a magic number. You may see rates from nearly 7% to as much as 18%. It really depends on your creditworthiness and how diligent a shopper you are. Is it a good idea to get a HELOC right now? For homeowners with low primary mortgage rates and a chunk of equity in their house, it's probably one of the best times to get a HELOC. You don't give up that great mortgage rate, and you can use the cash drawn from your equity for things like home improvements, repairs, and upgrades. Of course, you can use a HELOC for fun things too, like a vacation — if you have the discipline to pay it off promptly. A vacation is likely not worth taking on long-term debt. What is the monthly payment on a $50,000 home equity line of credit? If you take out the full $50,000 from a line of credit on a $400,000 home, your payment may be around $395 per month with a variable interest rate beginning at 8.75%. That's for a HELOC with a 10-year draw period and a 20-year repayment period. That sounds good, but remember, it winds up being a 30-year loan. HELOCs are best if you borrow and pay back the balance in a much shorter period of time.
Yahoo
a day ago
- Yahoo
HELOC rates today, August 18, 2025: Get a low interest rate now, then look for the Fed to cut rates later
The HELOC interest rate today remains firm. The prime rate will likely move lower if the Federal Reserve holds to expectations with an interest rate cut next month. And that will lower HELOC rates too. You don't have to wait for rates to start falling, however, because a home equity line of credit often begins with a below-market introductory interest rate. Dig deeper: Is now a good time to take out a HELOC? HELOC rates Monday, August 18, 2025 According to Bank of America, the largest HELOC lender in the country, today's average APR on a 10-year draw HELOC is 8.72%. That is a variable rate that kicks in after a six-month introductory APR, which is 6.49% in most parts of the country. Homeowners have a huge amount of value tied up in their houses — more than $34 trillion at the end of 2024, according to the Federal Reserve. That's the third-largest amount of home equity on record. With mortgage rates lingering in the high 6% range, homeowners are not likely to let go of their primary mortgage anytime soon, so selling the house may not be an option. Why let go of your 5%, 4% — or even 3% mortgage? Accessing some of the value locked into your house with a use-it-as-you-need-it HELOC can be an excellent alternative. How lenders determine HELOC interest rates HELOC interest rates are different from primary mortgage rates. Second mortgage rates are based on an index rate plus a margin. That index is often the prime rate, which today is 7.50%. If a lender added 1% as a margin, the HELOC would have a rate of 8.50%. Lenders have flexibility with pricing on a second mortgage product, such as a HELOC or home equity loan, so it pays to shop around. Your rate will depend on your credit score, the amount of debt you carry, and the amount of your credit line compared to the value of your home. And average national HELOC rates can include "introductory" rates that may only last for six months or one year. After that, your interest rate will become adjustable, likely beginning at a substantially higher rate. How a HELOC works You don't have to give up your low-rate mortgage to access the equity in your home. Keep your primary mortgage and consider a second mortgage, such as a home equity line of credit. The best HELOC lenders offer low fees, a fixed-rate option, and generous credit lines. A HELOC allows you to easily use your home equity in any way and in any amount you choose, up to your credit line limit. Pull some out; pay it back. Repeat. Meanwhile, you're paying down your low-interest-rate primary mortgage like the wealth-building machine you are. Look for introductory rates, but be aware of a rate adjustment later Today, FourLeaf Credit Union is offering a HELOC rate of 6.49% for 12 months on lines up to $500,000. That's an introductory rate that will convert to a variable rate later. When shopping lenders, be aware of both rates. And as always, compare fees, repayment terms, and the minimum draw amount. The draw is the amount of money a lender requires you to initially take from your equity. The power of a HELOC is tapping only what you need and leaving some of your line of credit available for future needs. You don't pay interest on what you don't borrow. HELOC rates today: FAQs What is a good interest rate on a HELOC right now? Rates vary so much from one lender to the next that it's hard to pin down a magic number. You may see rates from nearly 7% to as much as 18%. It really depends on your creditworthiness and how diligent a shopper you are. Is it a good idea to get a HELOC right now? For homeowners with low primary mortgage rates and a chunk of equity in their house, it's probably one of the best times to get a HELOC. You don't give up that great mortgage rate, and you can use the cash drawn from your equity for things like home improvements, repairs, and upgrades. Of course, you can use a HELOC for fun things too, like a vacation — if you have the discipline to pay it off promptly. A vacation is likely not worth taking on long-term debt. What is the monthly payment on a $50,000 home equity line of credit? If you take out the full $50,000 from a line of credit on a $400,000 home, your payment may be around $395 per month with a variable interest rate beginning at 8.75%. That's for a HELOC with a 10-year draw period and a 20-year repayment period. That sounds good, but remember, it winds up being a 30-year loan. HELOCs are best if you borrow and pay back the balance in a much shorter period of time.
