How to qualify for the lowest current home equity line of credit rates

Before looking for the lowest current HELOC rates, note that you need to have enough home equity to qualify for a HELOC.

Home equity is the percentage of your home's value that you own outright. To calculate your home equity, subtract the amount you still owe on your mortgage from the total current appraised value of your home.

For example, if you owe $200,000 on your mortgage, and the appraised value of your home is $500,000, you will have $300,000 in home equity ($500,000 - $200,000 = $300,000).

While qualifying for a HELOC requires home equity, a good credit score, and a low DTI ratio, getting the lowest current HELOC rates comes with stricter requirements.

Finding the lowest current HELOC rates can also depend on the lender you choose, the terms of the HELOC, and external market factors.

What is a low HELOC interest rate?

Because HELOC rates vary based on many factors, and because rates can change overnight, there is no set-in-stone "low" HELOC interest rate. 

For example, while a particular interest rate might be relatively low today, the same rate could be considered incredibly high in a few years. 

So, while a HELOC rate might look good to you right now, external factors could impact what a low HELOC rate is in the future. Fluctuating rates are normal, so if you're ready to get a HELOC, home equity loan, or similar mortgage, you might want to lock in a rate before it changes.

Typically, qualified homeowners with higher credit scores and lower DTI ratios will be able to get the lowest HELOC rates. 

READ MORE: How to qualify for a home equity loan

Compare offers from multiple lenders to find the best deal for you.

Factors that lead to low HELOC interest rates

The following factors help lenders determine what HELOC interest rates they will offer to borrowers:

Credit score

A high credit score may indicate that you are a low-risk borrower. A lender may offer you lower rates if they think that you will repay your loan on time.

Maintaining a good or great credit score could help you qualify for the lowest current HELOC rates. Paying bills on time, keeping a low credit utilization, and having open lines of credit – including a mortgage – may improve your credit score.

Income

A high income may indicate that you can afford your monthly payments, potentially leading to lower HELOC rates.

Aside from your primary source of income, you could find a secondary source, like a part-time job, to increase your total income. This may lower your potential HELOC rate even further.

DTI ratio 

DTI ratio is the difference between your total debt obligations (including your current mortgage payment) and income. For example, if you earn $5,000 a month and have $1,500 in monthly obligations, then your DTI would be 30% (1,500 / 5,000 = 0.3 or 30%.)

Typically, lenders like to see a DTI ratio of less than 43%, with lower DTI ratios potentially getting access to better rates.

You could improve your DTI ratio by paying off existing debts or increasing your income.

LTV ratio

To work out your LTV ratio, divide your current mortgage balance by the current appraised value of your home. For example, if your home is valued at $350,000, and you owe $250,000 on your mortgage, you would have an LTV ratio of 71%. (250,000 / 350,000 = 0.71 or 71%.)

As with DTI, lower LTV ratios may mean lower HELOC rates.

Federal interest rates

The Federal Reserve's federal funds rate is one of the most important factors that can impact HELOC rates.

When the federal funds rate goes up, HELOC rates also typically go up. This is because lenders may need to adjust the rates they offer to match changes made by the Federal Reserve. 

Higher federal funds rates could mean higher HELOC rates in the near term. When economic conditions improve, the Federal Reserve may lower its rate, potentially leading to lower HELOC rates.

Will HELOC interest rates go lower or higher?  

HELOC rates may increase when the Federal Reserve is fighting inflation. However, just because average HELOC rates are getting higher, it doesn't mean that the rate available to you will keep increasing.
One factor of HELOCs to keep in mind is the variable interest rate. Because HELOCs usually come with variable interest rates, the interest you pay on a HELOC could change.

If rates trend higher, that will likely mean higher monthly payments. If rates drop over time, you could save money as the HELOC rate changes.

Predicting exactly when interest rates will go up or down is impossible, so it may be best to focus on factors you can control, such as your credit score and DTI.