What determines the interest rate on a heloc

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• The average interest rate on a HELOC is 4.14% for a $50,000 loan with an 80% loan-to-value ratio.
• But credit score, location, and the loan-to-value ratio of the HELOC could affect your interest rate. 
• While rates are low right now, remember they may not stay that way over the many years of your loan.

The average interest rate for a $50,000 HELOC is 4.92%, according to data from S&P Global, assuming an 80% loan-to-value ratio.

If you're a homeowner with equity, a HELOC — home equity line of credit — has relatively low interest rates compared to other ways to borrow.

Unlike home equity loans, HELOCs are credit accounts, where a line of credit is established that allows you to borrow over time. HELOCs are more akin to a credit card account than to a loan, as you can borrow as many times as needed up to certain limit, and until a date when repayment starts.

HELOCs don't provide a lump sum of cash up front. Instead, they're ideal for situations where you aren't sure how much you'll need to borrow, like a remodel.

No matter the situation you're borrowing for, your credit score, loan-to-value ratio, and where you live could affect the HELOC interest rate you'll see from your lender. Here's how these factors can affect what you'll pay.

Average HELOC interest rate over time 

HELOCs often carry a variable interest rate, which means that the interest rate can change over the life of the loan.

Those interest rates often carry a close tie to the prime rate, the interest rate banks are charged to borrow. This interest rate follows the Federal Reserve's federal funds rate, which can change often. Its effect is often apparent in the interest rates seen on everything from auto loans to savings accounts. 

Banks sometimes add a margin to the prime rate to determine their HELOC interest rates. The prime rate started 2022 at 3.25%, though it's trended up since then. Here's how the prime rate has changed since 2001 (rates listed are for the start of January of each year):

Interest rates on HELOCs have been increasing this year. Here's how the average interest rate has changed so far in 2022, according to S&P Global data. 

Since HELOC interest rates are variable, each one could — and likely will – change in the future. Your interest rate could go up, especially as the economy recovers from the coronavirus fallout.

While interest rates for HELOCs are low right now, they may not always stay this way in the future, an important thing to consider when looking at this line of credit, which could take five or 10 years to repay. 

Average HELOC interest rate by loan-to-value ratio

The amount you want to borrow and how much your home is worth come into play when looking at the loan-to-value ratio of your HELOC loan. Most lenders allow homeowners to borrow up to 80% of the value of their home minus the mortgage balance, while some lenders allow up to 90% minus the mortgage balance. 

Banks see a HELOC with a loan-to-value ratio over 80% as a bigger risk. Generally, banks charge more for those loans. Here's how the average interest rate breaks down based on the loan-to-value ratio. 

HELOCs by credit score

Like any other type of credit, the amount you'll pay in interest is also determined by your credit score. HELOCs are most affordable with a good credit score, and get progressively more expensive to borrow as credit scores decrease. 

HELOCs depend greatly on credit scores, and are most available to people with FICO scores above 720. According to credit bureau Experian, the minimum FICO score for a HELOC is 680. However, some exceptions could be made, especially for people with a large amount of equity in their homes. 

Average HELOC interest rate by state

Like the average mortgage interest rate, the average HELOC interest rate will also vary by state.

According to S&P Global, California, Florida, Maryland, and New Jersey homeowners will pay the most for their home equity lines of credit, with the average interest rate over 5.3%. However, homeowners in North Carolina, North Dakota, South Dakota, and Vermont will see the lowest interest rates, with interest rates below 4.4%. 

Here's what the average HELOC rate looks like across the US, assuming an 80% loan-to-value ratio:

How are HELOC interest rates calculated?

Does the interest rate on a HELOC change?

How can I lower my HELOC interest rate?

Are HELOC rates always variable?