If you’re hoping to tap into your home’s equity, a home equity line of credit (HELOC) can be a big help. HELOCs are flexible, allowing you to borrow as needed, up to your credit limit. It’s similar to having a credit card, but secured by the equity in your home.
With the best HELOC lenders, you can usually find a competitive rate and borrow more than you might be able to with an unsecured personal loan or credit card. Your credit line is based, in part, on the equity available in your home, so if you have a lot of value built up, a HELOC might be a good choice. We reviewed several lenders and considered low rates and fees, repayment terms, and more to find the best HELOCs available for your projects.
Best HELOCs of 2020
|Lender||Why We Picked It||HELOC Amounts||Annual Fees||Draw Period||Repayment Period|
|PenFed||Best Overall||$25,000 to $500,000||$99 (can be waived)||10 years||20 years|
|U.S. Bank||Best Bank or Credit Union||$15,000 to $750,000 ($1 million in California)||Up to $90 (can be waived)||10 years||20 years|
|Bank of America||Best for Low Fees||$25,000 to $1 million||$0||10 years||20 years|
|Connexus Credit Union||Best for Small Improvements||$5,000+||$0||15 years||15 years|
|Bank of the West||Best for Large Improvements||Up to $2 million||Up to $75||10 years||10-20 years|
|TD Bank||Best Regional Lender||$25,000 to $500,000||$50||10 years||20 years|
PenFed: Best Overall
PenFed allows borrowers to take out a line of credit of up to 90% combined loan to value (CLTV). PenFed covers your closing costs as long as you don’t pay off your line of credit within three years—otherwise you’ll have to repay them. Additionally, as long as you pay at least $99 in interest on your line of credit during the year, you won’t pay an annual fee (which is also $99). The repayment period is up to 20 years following a 10-year draw period. HELOC amounts range from $25,000 to $500,000.
Even though it’s a credit union that primarily serves military service members and their families, anyone can join if they become a member of one of PenFed’s affinity partners, such as the Coast Guard Auxiliary Association (CGAuxA), which may come with a small fee. A minimum deposit of $5 is also required to open a PenFed account.
Ways to avoid fees
Borrow up to 90% CLTV
Penalty if paid off in three years
U.S. Bank: Best Bank or Credit Union
For the best rates, U.S. Bank considers homeowners’ credit scores (at least 730), the line of credit limit (up to $100,000), and the loan-to-value (LTV) ratio. There are no closing costs, but you may pay a prepayment penalty of 1% on the original credit amount, up to a maximum of $500, if you pay off the HELOC within three years. HELOC amounts range from $15,000 to $750,000 (up to $1 million in California) and repayment periods are available in 10-, 15-, or 20-year terms after a 10-year draw period. U.S. Bank charges an annual fee of up to $90 after the first year, unless you sign up for the bank’s Platinum Checking Package (then it’s waived, but you may trade it for a monthly maintenance fee).
No closing costs
Penalty of up to $500 if paid off within three years
Annual fee of $90 if not bank member
Bank of America: Best for Low Fees
Bank of America offers one of the best HELOCs, with no application fee, no closing costs (on up to $500,000), and no annual fee. On top of that, if you want to convert a portion of your HELOC to a fixed-rate loan, there’s no fee for that, either. The only fee you face is a repayment penalty if you pay off your HELOC within three years ($450 plus any other taxes and fees).
No application fee, closing costs, or annual fee on lines up to $500,000
Integration with Bank of America’s Preferred Rewards
Closing must be done at a financial center
Connexus Credit Union: Best for Small Improvements
Connexus Credit Union offers a minimum loan amount is $5,000, which makes it ideal for small home improvement projects. Connexus also offers a 15-year draw period, which is longer than the common 10-year draw period offered by other institutions on our list. Closing costs start at $175 and can be as high as $2,000, but there are no annual fees and Connexus doesn’t state whether there’s an early payoff penalty.
Since Connexus is a credit union, there are membership requirements to join. You can become a member of the credit union by joining the Connexus Association through a one-time $5 donation and depositing at least $5 into a savings account.
Low minimum loan amount
Longer than usual draw period
Not available in Maryland, Hawaii, Texas, or Alaska
Bank of the West: Best for Large Improvements
With lines of credit of up to $2 million, Bank of the West is one of the best HELOCs if you have a large project, high amount of debt to consolidate, or other large expense to pay for. There are no origination fees or closing costs, and it’s not clear if there’s an early repayment penalty, but there is an annual fee of up to $75. And if you elect to convert from a variable rate to a fixed rate (and vice versa), you could incur another $100 fee. There is a 10-year draw period, and then a repayment period of 10, 15, or 20 years.
High maximum line of credit
No closing costs
No way to waive annual fee
Fee for converting to a fixed rate
TD Bank: Best Regional Lender
TD Bank HELOCs are only available in 15 states on the East Coast, plus Washington D.C., but it is the best regional lender on our list because there is no minimum draw, and you can access a credit line between $25,000 and $500,000. There is an annual fee of $50 on lines of $50,000 or more, and an origination fee of $99, though. You may also pay an early termination fee of 2% of the HELOC amount (up to $450) if you pay off your balance within 24 months of the date it’s opened.
Other benefits include locking in a fixed rate and connecting your line of credit with your bank account. It’s even possible to use your HELOC for overdraft protection and access the credit line with a debit card. TD Bank also received the highest rating of banks in the J.D. Power 2019 U.S. National Banking Satisfaction Study.
High customer service rating
No setup fees for locking in a fixed rate
Connect your HELOC to your TD Bank account
More fees than other lenders
Only available in 15 states, plus Washington D.C.
What Is a HELOC?
A HELOC is not an installment loan, like a home equity loan. Instead, it is a home equity line of credit based on how much equity you have in your home. Your HELOC works a lot like a credit card, with you “freeing up” more room as you make payments. A HELOC is a revolving line of credit with a draw period, which allows you to take money as needed for a certain period of time. After the draw period is over, though, you begin making regular payments.
How Does a HELOC Work?
You can use a HELOC for home improvement and repair projects, debt consolidation, or other large life expenses.
With a HELOC, you can borrow up to a percentage of your home’s value, based on how much you owe. For example, if you have a home worth $250,000, and you still owe $125,000 on your original mortgage, you have $125,000, or 50%, in available home equity. However, a HELOC lender bases your credit amount on your combined loan-to-value (CLTV) ratio. For example, a lender may limit you to 85% CLTV, which includes your HELOC plus your original mortgage. If your home is worth $250,000, 85% equals $212,500. So if you have 50% equity in your home at $125,000, you can only borrow a HELOC up to $87,500—the difference between the total CLTV and the amount of your equity.
The HELOCs draw phase, during which you can withdraw money as needed, up to your available line, is often 10 years. You can make payments during the draw phase, and many HELOC lenders let you choose whether to make interest-only payments or payments that also include the principal.
Most HELOCs come with variable interest rates, though some lenders may offer the option to convert your variable rate to a fixed rate, potentially for a fee.
After the draw phase ends, you have the repayment phase. This is when you can no longer withdraw money, and must make regular payments until the line of credit is paid off. Repayment periods vary per lender, though it is common to have a repayment term of up to 20 years. Keep in mind that if you pay off the line of credit early, you may incur a penalty fee.
Is HELOC Interest Tax Deductible?
Depending on how you use your HELOC, you might be able to deduct some of the interest on your taxes. In order to qualify for a tax deduction, however, the funds must be used on home improvements. You can’t claim a tax deduction for HELOC funds used for other purposes, like debt consolidation or special events.
How to Get a HELOC
Before getting a HELOC, you need to make sure you have available equity in your home. The lender typically checks to see the difference between the value of your home and what you still owe. When you’re ready to get a HELOC, fill out the application with the lender online or in person at a branch. If the lender sees that you have the ability to repay the line of credit and adequate equity in your home, you may be approved for the HELOC and receive the line of credit within just a few days.
It may be possible to get a HELOC through your current mortgage lender, but it may also be smart to research other online lenders to find the best HELOC rates and terms.
HELOC vs. Home Equity Loan
A HELOC is a revolving line of credit that can be accessed as much as needed during the draw period without re-applying. You have a credit limit that’s determined by the equity in your home and how much of the available credit you’ve used. A home equity loan, on the other hand, is an installment loan with a set amount borrowed and a fixed payment schedule.
|HELOC||Home Equity Loan|
|Based on your home’s equity||Based on your home’s equity|
|Revolving line of credit||One lump sum of money|
|Draw period and then repayment period||Repayment period|
|Variable interest rate||Fixed interest rate|
HELOC vs. Refinance
With a refinance, you get a new home loan designed to pay off your old mortgage. This is a completely new mortgage with a new rate and term. It’s also possible to refinance for more than you owe and receive cash for the difference.
|Based on your home’s equity||Replaces your current mortgage|
|Revolving line of credit||Possible to get extra cash by borrowing more than you owe|
|Draw period and then repayment period||Terms may vary, usually up to 30 years|
|Variable interest rate||Fixed and variable interest rates available|
Is a HELOC a Good Idea?
Whether a HELOC is a good idea depends largely on your own goals and finances. If you’re planning to make home improvements and you’re not sure how much they will cost, or if you want access to ongoing financing, a HELOC might work for you.
However, if you just need a set amount of money, want a shorter pay-off period, and don’t anticipate needing to borrow more, a home equity loan might be a better fit.
Consider what you’re using the HELOC for. If you’re paying off debt or taking a vacation, you’re securing the line of credit with your home. If you can’t make payments, you could end up losing your house. Carefully consider your situation before moving forward with a HELOC.
How We Chose the Best HELOC Lenders
We determined our list of the best HELOCs by comparing over 15 different lenders. We looked at fees, repayment terms, and more to find the best HELOC options for homeowners. Our recommendations take into account that borrowers have different financial situations and needs and that not all HELOCs meet those priorities. Not every recommendation is right for every borrower, so consider all your options before applying.
PenFed. "Home Equity Line of Credit." Accessed June 12, 2020.
PenFed. "Membership Disclosures." Accessed June 12, 2020.
U.S. Bank. "Home equity FAQs." Accessed June 12, 2020.
U.S. Bank. "Home Equity Line of Credit (HELOC)." Accessed June 12, 2020.
Bank of America. "Home Equity Assumptions." Accessed June 12, 2020.
Connexus Credit Union. "Home Equity Loans & Lines of Credit." Accessed June 12, 2020.
Connexus Credit Union. "Connexus Membership." Accessed June 12, 2020.
Bank of the West. "Important Terms: Equity Choice Line of Credit." Accessed June 12, 2020.
Bank of the West. "Home Equity." Accessed June 12, 2020.
TD Bank. "Home Equity Line of Credit Rates." Accessed June 12, 2020.
TD Bank. "Home Equity Line of Credit." Accessed June 12, 2020.
IRS. "Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 2." Accessed June 12, 2020.