3 HELOC decisions borrowers should think about now
Homeowners who have been borrowing from their home equity via a home equity line of credit (HELOC) have likely seen significant improvements in their repayments this year. Thanks to a consistently declining average interest rate, HELOCs are now materially less expensive than they were just a few months ago. Right now, the average HELOC rate is just 8%, making it around two points lower than it was in 2024. And, if economic conditions continue to develop the way they have, HELOC rates could fall even further in the weeks and months to come.
While these developments are undoubtedly welcome by existing borrowers, particularly considering the variable rate nature of the product that allows them to benefit from rate drops without having to pay to refinance to a lower rate, they also open the door to a series of decisions that homeowners may not have anticipated having to make at this point. By reviewing these decisions, however, they could potentially improve their home equity borrowing circumstances further and even position themselves for additional savings. Below, we'll detail three timely HELOC decisions borrowers should think about right now.
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3 HELOC decisions borrowers should think about now
Here are three important decisions current HELOC borrowers should start to seriously consider right now:
The decision to switch lenders
Sure, average HELOC rates have been declining overall. But it's possible that the rate drop with your existing HELOC lender isn't as significant as it is with competitors. Perhaps you automatically used your current mortgage lender to secure the line of credit, but now realize that other banks have better terms and lower rates. At a minimum, you should use this current cooling in the HELOC rate climate to explore what's available. And, if you find something more affordable, consider switching lenders to realize those savings. Just be sure to shop around thoroughly before making the switch (get offers from at least three other lenders to establish a baseline).
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The decision to make bigger payments
HELOCs only require interest-only payments to be made during the draw period, which can last from five to 10 years, approximately. This gives borrowers some additional wiggle room each month, which wouldn't be possible with a home equity loan, for example, in which repayments are due immediately.
That said, some current HELOC users may want to use the cooler rate climate to make bigger payments and, thus, repay their line of credit off earlier than initially anticipated. In other words, if you were making a $500 payment at last year's interest rates and are only required to pay $450 at today's rates, consider paying the higher amount anyway to expedite the payoff. Just be sure to speak to your lender to let them know of your plans (and to make sure there are no prepayment penalties) before getting started.
The decision to refinance into a fixed-rate
While HELOCs are known for their variable rates, some lenders will let borrowers refinance them into a fixed-rate option. This can happen in two primary ways: by refinancing into a fixed-rate HELOC (which only some lenders will offer) or by refinancing into a fixed-rate home equity loan. Either, however, could be preferable now that rates are lower. With uncertainty over where rates are headed long-term, current HELOC borrowers may want to move to a fixed-rate option instead, giving them predictability and security should rates adjust upward again.
The bottom line
Borrowing with a HELOC doesn't need to be a static scenario. And, in today's cooling rate climate, it likely shouldn't be. Current borrowers, then, should consider the rates being offered by competitors, look to make bigger payments while rates are more affordable and, in some cases, even refinance into a fixed-rate instead. You won't know which of these options makes the most sense for your financial situation until you start investigating, however, so consider doing your research soon. It could pay off quicker than you anticipated.
