What drives HELOC interest rates?

HELOC borrowers should closely examine the factors that drive rates to better understand when to borrow with the line of credit. Getty Images/iStockphoto

Interest rates on home equity lines of credit (HELOCs) remained below 8% this week, according to new data released by Bankrate. Now at an average rate of 7.95%, rates on the revolving line of credit ticked up by just a single basis point week-over-week, allowing HELOCs to maintain their position as the cheapest borrowing option for homeowners right now. This comes after rates on the product hit 18-month and multiple two-year lows in the opening months of 2025, with that downward trend set to continue in the weeks and months to come, if current economic conditions persist. 

But what are those economic conditions, exactly? It's important to know what drives interest rates on any borrowing product being considered, but especially so for HELOCs, which have variable rates that will change monthly for all borrowers. Should these factors change, rates here could rise or fall, quickly making an affordable monthly payment cost-prohibitive and vice versa. So it's critical to be dialed in on these influencers before formally securing a HELOC. Below, we'll detail what factors, specifically, drive HELOC interest rates so that you're better prepared to borrow with this unique product.

See what HELOC rate you'd currently qualify for here.

What drives HELOC interest rates?

There is no one driving force behind HELOC interest rates; rather, they're impacted by a variety of factors working in conjunction. Here are the primary factors that drive HELOC rates up and down:

The federal funds rate: The rate controlled by the Federal Reserve has a major impact on HELOC rates, as demonstrated by the steady decline in HELOC rates that match up almost identically to the Fed rate cuts that started last September. It's important to note, however, that HELOC rates won't move on the same days and dates that the federal funds rate will, as lenders typically adjust their rate offers before any formal Fed action. Plus, other factors could influence the rate direction.

Compare your current HELOC rate offers here.

The prime rate: This is the median rate that banks charge customers. If it's higher, HELOC rates may tick up, and if it drops, HELOC rates could respond accordingly. That said, each lender may take a different approach when considering the prime rates' impact on HELOC rates, so it's important to shop around to compare rates and lenders.

Loan-to-value ratio: This may seem obvious, but some homeowners may think that a low federal funds rate and a low prime rate are sufficient for securing a low HELOC rate. But the specific loan-to-value ratio plays a critical role in driving HELOC rates, too. Smaller loan amounts or, in this case, credit line amounts, will typically present as less risky to the lender and be illustrated in lower rates for borrowers. A higher HELOC amount, conversely, will typically have the opposite effect.

Your credit score: A low federal funds rate, prime rate and loan-to-value ratio are ideal, but they won't matter much if your credit score at the time of application is mediocre. So, if your credit needs a boost, consider working on that before applying or you can proceed with securing a HELOC, but it could be at the risk of a much higher rate. And taking risks with a home equity borrowing product, which uses your home as collateral, is generally worth avoiding.

Miscellaneous economic data: Economic datapoints are closely interwoven to impact borrowing rates, sometimes in a significant way. So if inflation were to rise or unemployment were to creep up again, for example, HELOC rates could respond in an upward direction. Similarly, market uncertainty could cause lenders to protect themselves in the form of higher HELOC rates. So it's worth paying close attention to the market to see how these impacts play out – and for timely opportunities to snag a low rate.

The bottom line

These five factors go a long way toward driving the HELOC rate offers borrowers can expect to see on lender websites. But they may not be the only consideration, depending on the lender and your unique borrowing profile. So it's critical to shop around and to secure rate offers from at least three different lenders to determine which is truly offering the lowest HELOC rate, and which just appears to be.

Start your HELOC research online here.

Matt Richardson

Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.