How to shop for a HELOC: 10 ways to get the best HELOC rate

by EV Atlanta

We usually associate house-based lending — mortgages, home equity loans — with a fixed interest rate and stable payments. But home equity lines of credit (HELOCs) are different: The interest rates on HELOCs are usually variable, fluctuating with the prime interest rate (or other benchmark rate) — plus an additional percentage, or margin, your lender puts on.

Several factors come into play when it comes to securing a favorable initial rate on a HELOC. Your credit score is one of the most significant elements, along with your debt obligations and your overall financial health.

So, shopping around for a HELOC is crucial — for the most competitive interest rate, obviously, but for other favorable terms and conditions, too. Prepayment penalties, the length of the draw period, minimum draw amounts, interest-only payments, annual fees, “lock-in rate” fees: These factors can significantly impact your overall costs throughout the life of the loan.

10 tips to get the best HELOC rate

1. Maintain good credit

Having a good credit score is one of the key ways to obtain a competitive interest rate when applying for HELOC. A lender will consider your FICO credit score to determine the interest rate.

A credit score of 700 or above will most likely qualify you for the best interest rates, though homeowners with scores as low as 620 might still get approved.

“It’s all part of the riskiness factor for the lender, if they’re gonna lend to you or not,” says Sacha Rady, Realtor and real estate advisor at Engel & Völkers Atlanta, a real estate service provider based in Georgia. “They want to make sure they get paid back. The lower the credit score, the higher the interest rate you’re going to have.” Your credit score will also determine which loan products you might qualify for.

There are steps you can take to help improve your credit score when applying for a HELOC. Some of the quickest actions you can take include checking your credit report and disputing any errors, keeping your credit card balances low and making all credit payments on time.

It is also important to be very careful about opening new lines of credit. Your credit score declines slightly every time you open another account.