Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• HELOC rates are influenced by the prime interest rate and by the homeowner’s financial history.
• Homeowners can typically borrow up to 85% of their equity (the home’s value minus the outstanding mortgage balance).
• HELOCs have two main phases: the draw period, during which you can access funds, and the repayment period, when you pay back principal and any interest you haven’t paid already.
• Variable interest rates can change over time, which can impact your monthly payments and the total amount of interest you’ll pay.
• Depending on how you use your HELOC funds, you may be able to take a tax deduction for some or all of the interest you pay.
In this guide, you’ll get an in-depth look at home equity line of credit (HELOC) rates in Colorado Springs, Colorado, to help you better understand what influences these rates and how you can qualify for the best terms. You’ll learn about the benefits and risks of HELOCs, how to compare different lenders, and what free tools are available to help you estimate your monthly payments. Whether you’re planning a home renovation, consolidating debt, or paying for graduate school, this guide will give you the knowledge you need to make an informed financial decision to reach your goal.
First things first: It’s important to understand just what a home equity line of credit is. It’s a revolving line of credit that lets you draw out funds if and when you need them, up to a limit set by your lender. It’s secured with your home’s equity (the value of your home minus what you still owe on your mortgage), which means that you may get a lower interest rate than you would for an unsecured loan, but also that your home can be at risk if you can’t make your payments. Generally, you’ll need a minimum of 15% to 20% equity in your home to qualify, and you can borrow up to 90% of that amount. Each HELOC has two distinct phases to be aware of.
After you take out the HELOC, the initial phase is the draw period, which usually lasts 10 years. During this time, you can access funds as you need them, up to the limit established by the lender. Often you can make interest-only payments on the money you draw during this period.
Next is the repayment period (usually 10 to 20 years), during which you pay back both principal and remaining interest on what you borrowed, in monthly installments. HELOC interest rates tend to be variable, meaning that they can fluctuate, so payments can be unpredictable.
HELOC interest rates are tied to the prime rate, which is influenced by the Federal Reserve’s policies. Lenders add a margin to the prime rate to determine the final HELOC rate. Your personal credit score, debt-to-income (DTI) ratio, income, and the amount of equity in your home will also play a role in the final rate you receive. Understanding these factors can help you anticipate HELOC rate fluctuations and decide the best time to apply for a HELOC. For instance, a higher credit score and more equity can lead to more favorable rates.
When it comes to your HELOC interest rate, size matters. Even a tiny difference in percentage points can add up to a lot more interest over time. For example, a $50,000 HELOC with a 20-year term at 7.00% will result in a monthly payment of $388 and the total interest paid over the life of the HELOC will be $43,036. If you bump that rate up to 8.00%, the monthly payment becomes $418 and the total interest rises to $50,373. In other words, that difference of just one percentage point increases the cost of the HELOC by more than $7,000.
HELOCs often come with variable interest rates, which have both benefits and costs. On the one hand, they usually start lower than fixed rates, which can keep your charges down for your initial draw. On the other, they can change over time, leading to fluctuating monthly payments and potentially higher total interest costs. As we’ve seen, a mere 1.00% increase in your interest rate could create a noticeable jump in your monthly payment and the total interest you’re responsible for. If you prefer more predictability, you might want to look into lenders who offer the option to convert all or part of your variable-rate balance to a fixed rate, ensuring your payments will be more stable.
While there’s no absolute certainty about what interest rates will do, tracking the prime rate can give you a good sense of where HELOC rates might be headed. Since 2018, the prime rate has dipped as low as 3.25% (in 2020) and has risen as high as 8.50% (in 2023). By looking at the changes of the prime rate over time, you can get a sense of how it might be likely to move in the future and plan your borrowing strategy accordingly. For example, if the prime rate is expected to fall, it might be a good time to lock in a HELOC with a variable rate.
| Date | U.S. Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.5% |
| 9/27/2018 | 5.25% |
Before you apply for a HELOC, using online tools like these calculators to help estimate your monthly payments can give you valuable information. Understanding how financing will impact your monthly budget is key to finding the option that’s right for you.
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
When you’re looking for an attractive rate on a HELOC, you’ll want to be sure that you meet or exceed lenders’ requirements. Three elements lenders focus on are your credit score, your debt-to-income (DTI) ratio, and your home equity. Understanding what potential lenders want to see and taking action in advance can go a long way toward getting you the rates you want.
You’ll generally need a credit score of 700 or higher to access the most attractive rates. If your score needs a little work, making timely payments and reducing your credit card balances may strengthen it, which could result in a lower HELOC rate for you. Don’t forget to check your credit report regularly to find any errors and dispute them right away so that you’ll know your record is correct.
You can determine your DTI ratio with a simple calculation: Just divide your monthly debt payments by your gross monthly income. HELOC lenders typically require a DTI ratio under 36% for the best rates. A low DTI ratio shows lenders that you can manage your debt responsibly.
Many lenders let you prequalify for a HELOC online. This early step can help you gauge what Colorado Springs HELOC rates could be within your reach. It can be a low-pressure and informative way to kick off your HELOC journey.
Before you start the application process, it’s important to check your credit score and calculate your debt-to-income (DTI) ratio, as mentioned earlier. You’ll also want to assess your home equity, which you can do by subtracting the amount you still owe on your mortgage from the estimated value of your home and then dividing that figure by your home value to arrive at a percentage. Lenders typically want you to have at least 15% equity in order to move forward with your HELOC.
As you consider a HELOC, take a close look at the different interest rates you may be eligible for. But that’s not all to think about when you’re deciding on a lender: Also compare the qualification requirements, HELOC minimums and maximums, associated fees, and the length of both the draw and repayment periods they’re offering. Shopping around can help you find the best deal and terms for your individual financial situation.
After you choose a lender, you’ll want to get your paperwork in order. You’ll need an official ID, proof of income, and details about your property. For income verification, you can likely use your most recent pay stubs, W-2 forms, and tax returns. (If you’re self-employed, your potential lender might ask for a profit-and-loss statement, as well as two years of tax returns.) And don’t forget your homeowners insurance declaration page. Once you’ve gathered all the documents, you should be ready to submit your application, which you can generally do online, over the phone, or in person.
A home appraisal is an objective, professional analysis to determine a home’s value in the current market. The home appraisal cost typically ranges from $300 to $600, depending on location and property type. If your home appraises for more than your outstanding mortgage balance, the lender may move forward with your HELOC application. An accurate appraisal is key to determining the maximum amount of equity you can access and the specific terms of your HELOC.
Before you can access your HELOC funds, you’ll need to sign the necessary loan documents and pay any required fees. Make sure you understand all of the terms and conditions of the loan, and review all of your closing documents carefully to avoid any surprises. Some lenders make funds available within three days after closing the HELOC, but others may take longer.
The good news is that HELOC closing costs are generally more budget-friendly than those associated with home loans or cash-out refinances. The most significant expense is often the appraisal fee. You may also encounter application, origination, title search, and administrative fees, or annual maintenance fees that could be as much as $250.
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Homeowners may be able to deduct HELOC interest if the borrowed funds are used to significantly improve their primary residence. Consult a professional tax advisor to understand the potential tax implications and to determine your eligibility for the HELOC interest deduction.
If you’re trying to figure out how to get equity out of your home, a HELOC may be a good choice, but there are others. Before you decide, it’s practical to consider all the different ways you can tap your equity, as well as another common borrowing option, the personal loan. Let’s take a closer look at each one.
What is a home equity loan? It’s another way to tap the equity you’ve built in your home, but rather than a line of credit, it provides you with a lump sum, which you pay back in monthly installments, generally at a fixed rate of interest. With a home equity loan, you can typically access up to 85% of your equity. Lenders often look for a credit score of 680 or more, but many prefer 700 or above. If you need a hefty sum upfront, and if you prefer monthly payments that won’t change, a home equity loan may be a good fit.
A cash-out refinance is a form of mortgage refinance in which you borrow more than your current outstanding mortgage balance so that you can access the difference in cash. Lenders generally want a credit score of 620 or higher and a DTI ratio of less than 43% to approve a cash-out refi, which may have either fixed or variable rates. When would you opt for a cash-out refinance vs. a home equity line of credit? If you prefer to get one bill rather than separate mortgage and loan bills, a cash-out refi may make sense.
Unlike the other three financing options we’ve mentioned, a personal loan doesn’t rely on your home equity. That way, your home isn’t at risk if you find yourself unable to make your payments. Typically, you repay your personal loan in regular, fixed payments over a term of two to seven years. Many lenders will want to see a credit score of 610 or higher to issue a personal loan. While they can be relatively quick to get, personal loans are likely to have higher interest rates than HELOCs or home equity loans.
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As you’re contemplating taking out a HELOC, it’s important to realize what the potential costs and benefits are. The flexibility and potentially lower interest rates of a HELOC can make it an appealing way to manage large expenses. But variable interest rates can mean that your monthly payments are unpredictable, and you risk losing your home if you default. Understanding what it takes to get the most competitive HELOC rates and how to evaluate lenders puts you in a good position to make the right decision about what kind of financing makes sense for you.
Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.
A HELOC can be used for almost any purpose, including home improvements, debt consolidation, and education expenses, among others. Since a HELOC has a draw period of usually 10 years when you can pull funds as you need them, it can be particularly useful for managing ongoing projects or covering unpredictable expenses.
Whether a HELOC makes sense for you hinges on your unique financial situation and the current Colorado Springs HELOC rates. Wherever the rates are at present, if you’ve got a robust credit score, a steady income, and a good-sized chunk of home equity, a HELOC could be a cost-effective solution for significant extra expenses. Just remember that the variable interest rates can mean your payments could rise, and defaulting can result in losing your home.
HELOCs provide a number of benefits. You have a revolving line of credit during the draw period and pay interest only on what you take out, plus you can spend the money on essentially whatever you want. Additionally, there’s the potential for tax benefits if you’re using the funds to make major improvements to your home. A HELOC can be especially useful if your expenses fluctuate or if you don’t need all the cash at once. The downsides include the unpredictability of variable interest rates and the possibility of foreclosure if you don’t make your payments.
Yes, generally your lender will require an appraisal to approve you for a HELOC. An appraisal helps determine your home’s current market value, which is essential for calculating the amount of equity you have. Lenders use this information to set your credit limit, usually up to 85% of your home’s value minus the outstanding mortgage balance. The appraisal process ensures that the lender isn’t overextending credit and that the loan is secured by sufficient equity. It’s a standard part of the HELOC application process.
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