Best Banks for a HELOC

Do you own a home and need some extra cash for a big project? Or maybe you have high-interest credit card debt, or an unexpected expense popped up, but you don’t have the cash to cover it.

Whether you’re thinking about a home renovation, looking to consolidate debt, or trying to pay off student loans, a low-interest HELOC might be the perfect solution.

However, like any type of loan or credit line, there are times when a HELOC makes sense, and times when it doesn’t. It all comes down to your unique financial situation, along with finding the best lender and rates.

In this post, I’ll cover the top banks and credit unions for a HELOC. You’ll also learn all about what a HELOC is, and what you need to watch out for if you’re applying for one.

8 Best Banks for a HELOC

If you’re looking for the best HELOC rates in October 2022, check out these top banks and credit unions for a home equity line of credit:

1. Bank of America

Bank of America (BoA) is one of the largest banks in the US and one of the best home equity loan and HELOC options.

You can apply for a BoA HELOC online with no application fee, no annual fee, and no closing costs. Plus, you can even convert your variable rate balance to a fixed rate loan for free. With all of this in mind, BoA is one of your best bets for a low upfront cost HELOC.

When it comes to interest rates, BOA offers different variable rates depending on what state you own a home in. For example, if you live in Texas, the current interest rate starts at 6.760%. However, if you live in Alabama, it’s significantly lower at 5.880%. To find out rates for your state, just head to the BoA site.

To get started, you can use BoA’s online home equity calculator, which estimates your rate and payment. You can also use BoA tools to estimate your home’s current value.

The application process only takes about 15 minutes. Once you complete it, you’re connected with a specialist who can walk you through your various home equity options. If you’re approved, you need to head to a BoA financial center to close, and you can then access your credit line online, over the phone, or in person.

2. U.S. Bank

U.S. Bank, one of the most prominent banks in the Midwest, offers solid HELOC options.

U.S. Bank’s variable HELOC rates range from 5.70% to 10.10%. To get the lowest possible rate, U.S. Bank assumes a credit limit of $100,000, an LTV ratio of 70%, a FICO score of at least 730, and an existing U.S. Bank checking account. To get a better idea of where you stand, you can quickly get an estimate of your rate and payment on the U.S. Bank site.

To apply for a U.S. Bank HELOC, head over to the website, give them a call, or stop by your local branch. Once you’ve submitted all documentation and gotten approval, you’ll close on your credit line in the branch.

3. Pentagon Federal (PenFed) Credit Union

Prefer the credit union route? Then PenFed is easily one of your best options. This is especially true if you belong to a military family.

At the moment, PenFed HELOC rates start at 8.75%. The APR is based on the prime rate combined with a margin and can change monthly. You can apply for a PenFed HELOC with your primary residence if your credit score is at least 700, and you need to provide recent pay stubs and bank account balances, plus a year of W2s and information regarding a second mortgage if you have one.

PenFed HELOCs range from $25,000 to $1 million and come with a 10-year draw period and a 20-year repayment period. As a borrower, you make interest-only payments during the draw period, and you can choose to switch from a variable rate to a fixed rate at any time. There’s a $99 annual fee for all HELOCs, which is charged on the anniversary of your account opening.

4. PNC Bank

PNC is one of the largest banks in the country and has significantly grown in recent years thanks to a series of acquisitions. PNC offers HELOCs with a variety of options, along with low rates and transparent fees.

When you open a PNC HELOC, you have two upfront options for your interest rate throughout the draw period. You can opt for the standard variable rate and payment, or you can go with a fixed rate for more consistency. Overall, you want to base this decision on the current state of the prime rate when you apply.

To get started, just answer a few simple questions on the PNC website. From there, you’ll get an idea of how much credit you’re eligible for, along with an estimated rate and payments. Once you know which direction you want to go in, you can complete the 15-minute application. PNC issues HELOCs in every state except Alaska, Hawaii, Louisiana, Mississippi, Nevada, and South Dakota.

PNC offers a 0.25% discount if you set up automatic payments from a linked PNC checking account. Plus, PNC is offering a $150 cash bonus if you apply for a HELOC between now and the end of August. All you have to do is close by the end of November on a line of $75,000 or more, and the bonus is yours.

5. Alliant Credit Union

Like many credit unions, Alliant is known for its better-than-average savings rates, along with some excellent mortgage rates. Fortunately, this same trend applies to the world of HELOCs, too.

With an Alliant HELOC, you can borrow against up to 90% of your equity, with terms that range from 15 to 30 years. For lines up to $250,000, there are no appraisal fees or closing costs. Alliant HELOCs are available in most states, and you can opt to pay interest-only for your first 10 years.

Right now, Alliant is offering APRs as low as 5.50% (5.75% if you go with interest-only), with terms up to 360 months. Alliant accepts online applications, and once you get conditional approval, you can either DocuSign or FedEx your documents to get your hands on your credit line.

Overall, Alliant is one of the better options available if you want flexibility on payments and your LTV ratio.

6. Flagstar Bank

Flagstar might not be a household name, but it has a solid reputation in the world of home equity. That said, the bank only operates branches in five states, so its coverage area is relatively limited.

Flagstar offers credit lines ranging from $10,000 all the way to $1 million. The draw period is 10 years and the repayment period is 20 years. Each rate is based on the state that you own a home in, but Flagstar bases its variable interest rates on the Wall Street Journal prime rate. At the moment, the rate ranges from 6.24% to a whopping 21.0%.

With Flagstar, there are no bank-imposed fees as long as your HELOC remains open for at least 36 months, but there is a $75 annual fee following your first year.

7. Third Federal Savings and Loan

Third Federal Savings and Loan is another under-the-radar option. While it might not meet the scope or household recognition of some bigger banks, it’s definitely one of the best options for HELOCs, if it’s available in your area.

To start, Third Federal offers a rate match guarantee. This means that if you find a lower HELOC rate with another lender, Third Federal will match it or compensate you for the difference. This is huge when it comes to borrowing against your home.

Additionally, Third Federal has no closing costs, prepayment penalties, or minimum draw requirements. It also offers a 30-year repayment period, and the annual fee is waived in your first year.

8. Citizens Bank

Citizens Bank is the most popular bank in Massachusetts and one of the biggest overall in the U.S. For HELOCs, Citizens regularly provides rates that are often lower than the prime rate, plus flexible terms and quality relationship perks.

To get going, you can head to the website and calculate your estimated rate. Variable rates currently start at 5.25%, and you can bank a 0.25% discount if you have a linked Citizens Bank account set up for automatic payments.

You can apply for a Citizens HELOC online, over the phone, or in-branch, and choose between interest-only and interest plus principal payments during the draw period. The repayment term is 15 years, and line amounts of $200,000 or more will secure you the best rates and terms. There are no set-up or appraisal fees, and your $50 annual fee is waived in the first year.


How Exactly Does a HELOC Work?

A home equity line of credit, or HELOC, is a type of home equity loan that allows a borrower to draw funds whenever you need them. Basically, it’s a line of credit that’s backed by the value of your home. Since a HELOC is a secured loan, lenders might be more willing to issue these credit lines than they would be otherwise.

When you take out a HELOC, you enter what’s known as the draw period, which is the amount of time you have to withdraw funds from your credit line. Once that period expires, you enter the repayment period, which consists of monthly payments covering the withdrawals, plus interest. Most commonly, HELOCs come with a 10-year draw period and a 20-year repayment period.

Most often, homeowners will use a HELOC for home improvement projects, debt consolidation, or as an emergency fund. This could be preferable to using credit cards or taking out a personal loan since HELOCs tend to come with lower interest rates.

Another benefit of a HELOC is that you don’t need to use the money in one lump sum. Once the money transfers to your account, you can use it to pay for expenses on your own timetable.

Remember the potential downsides of a HELOC. If you aren’t able to pay back what you owe, foreclosure on your home is a real possibility.

HELOCs are often conflated with home equity loans, but the two are distinctly different. In general, you can compare the two to the difference between a credit card and a personal loan. A HELOC is a revolving line of credit, while a home equity loan is a lump sum loan upfront.

How to Apply for a HELOC

Once you’ve decided that a HELOC is the right financial move for you, it’s time to start looking around for the best loan options. A variety of financial institutions offer HELOCs, and you’re likely to run into a bunch of different rate options.

If your current bank or mortgage lender offers HELOCs, that’s a great place to start. An existing relationship can often help you get the best deal, as banks and credit unions usually offer more competitive rates to loyal customers.

That said, it’s always a good idea to get multiple quotes when looking for a HELOC, or any type of loan or credit. Holding a checking account or savings account with a bank doesn’t necessarily guarantee a preferable deal, and there may be low rates elsewhere.

When you choose your lender, you can go ahead and fill out your application. Most institutions offer an online application process, which will probably feel similar to your mortgage application. For this process, you’ll need to come prepared with information to verify any income, assets, and your credit history. Keep in mind that HELOCs will require a minimum credit score, so be sure to check your credit report before you apply.

From there, it’s a simple waiting game to see if you qualify. If the loan goes through, you’ll get your credit limit, loan terms, and repayment terms. Once your paperwork clears, you begin your draw period (usually 10 years), which is the amount of time you have access to a HELOC before needing to reapply.

Important Aspects of a HELOC to Consider

Of course, like any time you’re borrowing money, there are plenty of things for you to watch out for with a HELOC. Like I said earlier, there’s a time and place that makes sense for a loan, and there are plenty of situations where you should avoid one.

Here are a few things to think about if you’ve decided to pursue a HELOC.

Bank vs. Credit Union

Most banks and credit unions offer HELOCs, so the choice between the two often comes down to personal preference. While credit unions are known for preferable interest rates, this may not always be the case. Therefore, it’s in your best interest to shop around, and you can’t go wrong by starting with a familiar, local institution.

Interest Rate

HELOCs come with variable interest rates, as opposed to fixed interest rates. This means that as the prime rate fluctuates, so does yours. With a fixed rate, on the other hand, you’re locked in for the entire period.

Of course, you always want to find the best HELOC rate, but it’s important to look at the whole picture. For example, one provider may offer a discount for setting up autopay, or even an introductory rate discount (usually for the first year) if you’re a new customer.

In general, the two factors that most affect your rate are your credit score and debt-to-income ratio.

Loan Amount

Since a HELOC is not a lump sum loan, the total loan amount is less crucial than it would be with a home equity loan. However, you need to have a plan for how to use your HELOC, whether it’s for home renovations or refinancing. Always be mindful of much of the credit you use during the draw period, and avoid putting yourself in a difficult financial position.

With this in mind, it’s always important to consider your loan-to-value ratio (LTV), whether you’re opening a mortgage balance or a HELOC. Simply put, your LTV ratio is the amount you borrow in relation to the value of your home.

For example, if you buy a home worth $200,000, and you make a $20,000 down payment, your LTV ratio is 90%. Most lenders prefer to see an LTV ratio of 80% or lower.

Fees

Like most instances of borrowing money, you’re going to run into your share of fees as you go through the HELOC process. This is noteworthy because significant fees can make a loan extremely costly, even if you start out with a great interest rate.

Among the potential added costs, you may have an origination fee, annual fee, appraisal fee, application fee, and closing costs. It can all add up in a hurry.

However, there might be opportunities to offset some of these costs, such as an automatic payment discount or an introductory interest rate. HELOC interest is also usually tax-deductible.

The bottom line is that should understand the entirety of your terms upfront, so you can find the lowest-cost provider.

Frequently Asked Questions

What credit score do banks use for HELOCs?

Each bank is a little different, but in general, you can count on a bank requiring a credit score of at least 700 for a HELOC. Even if you meet the minimum requirements, you can always expect a more favorable rate if you have a good credit score.

Is it hard to get approved for a HELOC?

It depends. If your credit is in good shape and you have a reliable income, you shouldn’t have much trouble. However, if your credit report is full of red flags and your debt-to-income ratio isn’t great, it might take some time to get your finances back in shape before you qualify for a HELOC.

What are the requirements to qualify for a HELOC?

Each bank or lender is different, but there are certain requirements that are fairly consistent. For example, you need to own a home, have a minimum credit score, and be able to show a certain amount of consistent income.

If you’re wondering what the requirements are for a specific bank or lender, check out their website or feel free to reach out to them directly.

Why are some banks not offering HELOCs?

Near the beginning of the Covid-19 pandemic, several banks stopped offering HELOCs. This was due to what they typically noted as “unpredictable market conditions”.

This is a fairly common precedent, and many banks also scaled back on HELOCs following the financial crisis of 2008.

However, there are still plenty of banks and lenders that do offer them, so it shouldn’t be too difficult to find one that works for you.

Which HELOC is best for you?

Now that you know what HELOC is, how it works, and where to find one, you should have a pretty good idea of where to get started.

I covered some of the best banks and credit unions that are available all over the country. But the best rate might be right in your backyard, so don’t forget to check your local bank or credit union, in addition to big national branches.

No matter which provider you chose, remember: When banks compete, your wallet wins.