HELOC introductory interest rates: What experts say to know

Borrowers looking for affordable lending options have found tough sledding in recent years, thanks to a stubborn run of inflation that has kept interest rates elevated. Personal loans and credit cards now carry significantly higher annual percentage rates (APRs) than they were in 2020, leaving borrowers with fewer cost-effective ways to access cash.

If you are a homeowner with adequate home equity, a line of credit is a good option worth exploring. In particular, a home equity line of credit (HELOC) generally carries lower interest rates than other types of loans since they're backed by the home. And fortunately for borrowers, average HELOC rates just dropped to a two-year low, making them one of the most inexpensive ways to borrow money. Right now, the average HELOC rate of 7.90% beats those of home equity loans, (8.40%), personal loans (12.32%) and credit cards (22.80%).

HELOCs are unlike home equity loans in many ways, especially because they often come with low introductory rates. These temporary rates can help you save money, but experts want you to understand a few key details about them before proceeding.

Start by seeing how low of a HELOC rate you'd currently qualify for here.

HELOC introductory interest rates: What experts say to know

HELOC introductory interest rates could be worth exploring now, but it's important to take an informed approach. Below, we'll break down what experts say to know about this option.

What are HELOC introductory rates?

HELOC introductory rates are just that—lower rates lenders use to entice you to open a line of credit with them. These promotional periods typically last anywhere from six to 18 months, depending on the lender. Rates can start as low as 0.25% or go as high as 5.99% or more, so it's worth shopping around to get the best deal.

Start shopping for HELOCs online here.

The low rate won't last long

Unfortunately, that low intro rate won't last forever, as Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage, notes. "Once the introductory period ends, the rate will move back to adjusting. Typically, these rates are set as the prime rate plus a margin, depending on factors including your credit score, the amount borrowed, and combined loan-to-value with any other financing on the property."

DeFlorio suggests taking time to read the fine print and understand what your rate will adjust to after the introductory period, so you can decide whether the HELOC is the best plan for you.

The lowest rates go to borrowers with good credit

As with most loans and lines of credit, the better your credit score, the greater your odds of securing a lower HELOC rate, including its introductory offer. Of course, that's not all lenders consider. They also want to see steady income, a debt-to-income (DTI) ratio of 43% or less, and 15% to 20% equity in your home, among other requirements.

You'll need to meet your lender's minimum credit score requirement—often a 680 or greater FICO Score—to qualify for a HELOC. But what does it take to get a better introductory and ongoing rate? "Overall, [borrowers who] have the best credit scores, ideally over 780, more equity in their home after taking out the HELOC, and the shortest terms get the most competitive rates," says Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation.

Rates may come with conditions

Even if a HELOC's introductory rate is attractive, it's important to understand strings may be attached. These rates often carry conditions, such as signing up for autopay or opening a checking account with the bank.

"We also see lenders offering to cover all closing costs for a HELOC to bring the relationship in the door. Typically, you are required to keep the line open for a certain amount of time; otherwise, you will become liable to pay back these expenses," adds DeFlorio.

Minimum borrowing amounts are another common requirement, says David Mullins, founder and senior wealth advisor at David Mullins Wealth Management Group. "Because a bank makes more when a customer borrows more, intro rates usually come with a minimum line of credit amount, such as $25,000. Of course, credit lines provide money that is available to the borrower and interest would only accrue on the amount that is outstanding." That means you don't have to borrow the full $25,000, as interest only applies to what you actually use.

How can borrowers benefit most from HELOC introductory rates?

Perhaps the smartest way to benefit from HELOC introductory rates is to use the HELOC for a short-term goal—like a home improvement project or college tuition—and repay it before the introductory rate ends. "If you are using these funds short term and plan on paying it back quickly, looking for a lender for the longest introductory period may benefit you in saving the most money," says Schachter. But check for any early payoff fees, which could cancel out some of the savings.

Many borrowers use HELOCs to consolidate other high-interest debt accounts. But Mullins warns that despite good intentions, it's easy to end up deeper in debt. "Those who will benefit from HELOCs will have the financial discipline to use the lower rates to retire higher interest debt without allowing those accounts to creep back up," he says. "Use the cost savings to pay off the HELOC within the introductory period while the interest rate and cost of capital are known, and a HELOC can be an effective tool for a disciplined borrower."

Learn more about borrowing with a HELOC here.

The bottom line

With HELOC interest rates trending downward, this line of credit may be a more affordable lending option than other types of credit. Compare the pros and cons of HELOCs to determine if one fits your financial goals and budget. Remember that once the HELOC period ends, your rate converts to an ongoing variable rate. Before you sign, run the numbers and make sure you can handle both the introductory and future rates.