HELOC Best Lenders – NerdWallet
Current average HELOC rate
How a HELOC works
A HELOC works like a credit card: you can borrow up to a certain limit, pay off all or part of what you’ve purchased, then start over as needed. The lender uses the value of your home to set the HELOC limit. You can borrow for a drawing period of several years and only pay interest on the balance. Once the withdrawal period is over, you can no longer withdraw any money and you pay the principal plus interest.
In contrast, a home equity loan provides a lump sum that you pay back in equal installments over a specified period.
To get the best HELOC rates, be sure to compare, preferably with at least three lenders. As you shop, you’ll likely find the combination of features and interest rates that make the best home equity line of credit for your needs.
Advantages and disadvantages of HELOCs
A HELOC has a variable interest rate, which means it can go up or down over time. When the interest rate increases, the minimum monthly payment may also increase.
The main advantage of a HELOC is that it offers flexibility. During the drawdown period, the minimum monthly payment only covers the interest on the balance, so you don’t have to pay the principal if you don’t want to.
There are two major drawbacks to a HELOC: The interest rate can go up, and you can get the better of it if you’re not careful. You may have to borrow so much that you will no longer be able to comfortably pay the principal and interest during the repayment period.
HELOCs generally have lower interest rates than credit cards. But defaulting on a HELOC could put your home at risk of foreclosure.