You’ve long dreamed of updating your cramped, dusky, barely functional kitchen. There’s just one problem: It’ll cost tens of thousands of dollars to achieve your vision. And while you’re not flat broke, you can’t afford to pay that kind of money out of pocket. Are you out of luck?
Maybe not. If you’ve been in your house for a while and dutifully paid your mortgage the whole time, you likely have plenty of equity in the property. That means you have a ready-made source of low-cost capital to finance your remodel or other significant expenses.
Because of the intrinsic value of the home that secures it, a home equity loan or line of credit typically costs far less than unsecured alternatives, such as a personal loan or high-limit credit card. And qualifying dramatically lowers borrowing costs. But that doesn’t mean you shouldn’t shop around to get the best rates.
The Best Home Equity Loan and HELOC Rates for 2022
If you’re going to take out a home equity loan or home equity line of credit (HELOC), it’s crucial to know which lenders offer lower rates to borrowers like you.
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These home equity lenders consistently offer competitive fixed or variable interest rates on home equity loans, lines of credit, or both. Our top overall pick, Figure, offers the best value to the most would-be borrowers. But others have attractive offerings of their own.
Best Overall: Figure
Figure is a nimble, tech-driven lender disrupting the home equity loan and line world. Though technically a HELOC, Figure’s primary product is a proprietary hybrid, with both home equity loans and HELOC characteristics.
Figure has quite a bit going for it:
- Rates as low as 3.25% with all available discounts, including a 0.25% autopay discount and 0.50% credit union membership discount
- Ability to borrow up to 95% of the home’s combined loan-to-value ratio— 10% to 15% more than most home equity lenders allow
- Fixed interest rates on home equity loans and lines of credit
- Borrow up to $250,000 on a home equity line
- Borrow up to $500,000 on a home refinance loan
Additional features:
- A fast application process that can take less than a week from inquiry to funding
- Origination fee up to 5%
- Repayment terms from 10 to 30 years
Best for Full-Service Online Banking: Discover Bank
One of the best online banks around, Discover Bank is probably best known for its unsecured credit products, such as credit cards and personal loans. But its home equity loan division stands out for relatively low rates and friendly customer service. Key features include:
- Borrow up to $200,000 on a Discover Bank home equity loan
- Rates start around 4.00% annual percentage rate (APR) but vary based on borrower creditworthiness
- Loan terms range from 10 to 30 years
And if you’re looking for a home equity provider that also offers a full suite of banking services, Discover Bank is worth a closer look. It can provide category-leading products like:
Read our Discover Bank review to learn more.
Best for Affordable Home Equity Lines: Citizens Bank
Citizens Bank has some of the best-priced home equity lines around. Though interest on HELOC draws varies based on prevailing benchmark rates, the rate for well-qualified borrowers is typically 0.25% less than the prime rate, where most other lenders start.
If you live in the northeastern United States, you’re probably not far from one of its thousand-odd branches. But you don’t have to live within driving distance to take advantage of its low home equity rates.
Additional features:
- 10-year interest-free draw period on HELOCs
- 0.125% autopay discount
Best for Autopay Discounts: BMO Harris Bank
BMO Harris Bank offers home equity loans and lines of credit at very competitive rates. But the real star of the show here is the 0.50% autopay discount — considerably higher than the 0.125% to 0.25% discounts typical of other lenders.
Other benefits of BMO Harris Bank’s home equity products include:
- Special introductory rates on HELOCs — as low as 2% for 12 months
- Home equity loans start at just $5,000
- HELOCs start at $25,000
- Terms from five to 20 years on home equity loans
- Terms up to 20 years on HELOCs
Additional features:
- Earn rewards with a Savings Builder account
- Competitive rates on money market account balances
- Unsecured personal loans and lines of credit available, subject to credit qualification
Best for Variable-Rate Lines: PNC Bank
PNC Bank has some of the best money market and CD rates of any U.S.-based bank, but it seems determined to impress customers on the lending side too.
A standout feature here is the option to switch your home equity line between variable and fixed interest rates as the market changes. When rates rise, you can switch from variable to fixed and lock in a reasonable rate — or keep a portion of your balance on a variable rate to hedge your bets if rates go down again.
Additional features:
- Borrow up to 85% of your home’s equity
- PNC often covers closing costs on HELOCs — check with your loan officer for details
- Variable rates starting as low as 3%
- 0.25% autopay discount
- Rates vary by location, creditworthiness, and other factors
Best for Wide Range of Terms: TD Bank
TD Bank has several impressive bank account promotions for new deposit customers. Its home equity division is customer-friendly too, with low rates on loans and HELOCs and further discounts for checking customers.
The standout feature is a competitively priced home equity loan with an unusually wide term range: five years all the way up to 30 years. That’s ideal both for those who want to pay off their loans as fast as possible and homeowners looking to keep monthly payments well within budget.
Additional features:
- 0.25% rate discount with a qualifying TD Bank checking account
- No minimum HELOC draw
- HELOC rates start at the prime rate (currently 3.25%)
- Home equity loan rates as low as 4.50% with a fixed-rate 10-year term
Methodology: How We Select the Best Home Equity Loans & Lines of Credit
We use several important factors to evaluate home equity loans and lines of credit. All relate in some way to these products’ overall cost, value, or accessibility.
Interest Rate (APR)
The interest rate is the most crucial determinant of a home equity loan or line of credit’s cost. The higher the interest rate, the more you pay over the loan or draw term per amount borrowed. Accordingly, we look for lenders that strive to keep rates low, even in inflationary environments.
Repayment Terms
Home equity lines of credit typically have 20- or 25-year terms. They typically feature an interest-only draw period of five to 10 years followed by a principal repayment period of 10 to 15 years.
Home equity loan terms are more variable, ranging from 10 years — less in some cases — to 30 years. A shorter term means less interest paid over the life of the loan and higher payments. A longer term means more interest paid and lower payments.
One isn’t automatically better than the other, so we prefer lenders that offer more flexibility.
Loan or Line Size
Every lender limits the amount of home equity their borrowers can tap. They do this in two ways:
- By limiting the loan-to-value ratio (LTV), which usually can’t exceed 85% and often tops out at 80%
- By setting a maximum dollar value for a given loan or line
The second constraint only comes into play when the borrower has more equity available to tap than the lender wants them to. That typically occurs when the value of the borrower’s home is very high, the borrower has lots of equity in the home, or both.
All else being equal, we prefer lenders with wide borrowing ranges. That allows them to cater to people with modest borrowing needs — say, to fund a modest home improvement project — as well as those with big plans and borrowing capacity to match.
LTV Limits
Most lenders limit home equity LTV to 85% at most — but not all. Our best overall pick, Figure, uses a hybrid approach to allow borrowers to tap nearly all the equity in their home. While this raises the risk of going underwater — owing more on your home than it’s worth — in a down market, it’s a net positive for flexibility.
Available Discounts & Incentives
Home equity lenders invariably offer discounts and incentives that reduce closing costs, interest rates, or both.
Some are limited-time, one-off deals, like waiving the appraisal fee or knocking a predetermined amount off closing costs. Others target specific borrowers, such as loyalty discounts for borrowers that already have banking or borrowing relationships with the lender or autopay discounts for borrowers who allow payments to debit from their bank accounts automatically.
All else being equal, we prefer lenders that offer as many ways as possible to save.
Home Equity Loan & Line FAQs
These are the answers to the most frequent questions people have about home equity loans and lines of credit.
What Can You Use Home Equity For?
The short answer is just about anything. The most common uses for home equity loans and lines of credit include:
- Financing home improvement projects
- Consolidating higher-interest loans and lines, such as credit cards
- Settling tax debt
- Starting or expanding a business
- Paying for major emergency expenses, such as a hospital stay not covered by insurance
- Paying for major one-off expenses, such as a wedding
How Much of Your Home’s Equity Can You Borrow?
Generally, the amount you can borrow against the value of your home, including your first mortgage, can’t exceed 85% LTV — 85% of the home’s appraised value. The size of your home equity loan or line could be constrained as a result.
For example, if your home is worth $500,000 and the remaining balance on your first mortgage is $300,000, you can borrow no more than $125,000 on a HELOC or home equity loan. That’s because 85% of your home’s value is $425,000, and $425,000 minus $300,000 is $125,000.
Some lenders are even more strict. They cap borrowing at 80% LTV. In that case, you could only borrow up to $100,000 on a $500,000 home with the same $300,000 remaining on the mortgage.
Why Do Home Equity Rates Change So Often?
Home equity loan and line rates can change daily in response to fluctuations in benchmark interest rates. Changes aren’t usually dramatic, but they can make a big difference to your expected monthly payments over weeks or months.
Different lenders offer different rates at any given time, but broadly speaking, rates tend to move in unison across financial institutions and products. That matters if you’re shopping for a home equity loan or line of credit in the hope of taking advantage of low interest rates.
If you know you’ll need a home equity loan or line soon, your best move is to check rates at least every month — and maybe as often as every week. That way, you’ll spot early signs of increasing rates and can avoid paying more than necessary for financing.
What Other Factors Affect Home Equity Loan & Line Rates?
Many borrower- and loan-specific factors affect home equity rates. These are among the most important:
- Credit Score. Your credit score directly impacts your home equity loan and line rates. The higher your score, the lower your rate, assuming all other factors remain constant.
- Debt-to-Income Ratio. Home equity lenders prefer borrowers with low debt-to-income ratios — total eligible debt divided by gross income. The ideal debt-to-income ratio is below 36%. Lenders tend to balk at ratios starting at about 43%, though exceptions exist.
- Desired Loan Type. Home equity loans with fixed terms and rates tend to have slightly higher interest rates than home equity lines of credit since they’re riskier.
- Location. Home equity loan and line rates may vary by state. While the difference between the most and least expensive states tends to be less than 50 basis points (0.5%), that’s enough to make a meaningful difference in borrowing costs.
Lender-offered discounts can affect home equity rates as well. For example, many lenders knock 0.25% off the loan’s interest rate when you sign up for automatic payments.
How to Choose the Best Home Equity Loan or Line of Credit
Home equity rates can vary dramatically between lenders. They can also rise or fall based on borrower-specific factors, such as credit score, income, home value, mortgage balance, desired loan size, and geography.
Still, it’s possible to find competitively priced home equity products, even if your borrower profile isn’t quite as strong as you’d like. As you speak with lenders and evaluate home loan offers, consider factors like:
- The loan’s interest rate
- Whether the rate is fixed or adjustable
- Whether the lender requires an appraisal
- The loan’s term
- The total monthly payment
- The cost of mortgage points, if any
- Total closing costs, if any
These factors can significantly impact your borrowing allowance and costs for better or worse. It pays to shop around until you find a truly compelling offer.
And if factors within your control, like your credit score, prevent you from finding one, take a pause to work on them. Waiting a year or two to reapply with a better credit score could open doors you hadn’t even realized were closed.