Compare HELOC rates in Massachusetts.

Introduction to HELOC Rates

If you’re looking at home equity line of credit interest rates in Massachusetts, congratulations: Chances are good that you’ve been diligently paying off your home loan, you’ve built up some equity in your property, and are looking at ways to get equity out of your home to finance a renovation, cover education costs, or perhaps consolidate debt into one payment with a more reasonable interest rate (smart move).

HELOCs can be a great financial tool, but it’s important to fully understand how they work and what determines the interest rate you’ll be offered, and to assess your financial situation before signing on for the line of credit. Take a few minutes to study this guide and you’ll be better equipped to get the best available HELOC rate and terms in Massachusetts. Step one, understand the basics:

What Is a HELOC?

A HELOC is a revolving line of credit. In practical use, it functions much like a credit card. The amount you can borrow is based on your home equity, which is the difference between your home’s current value and your mortgage balance. Your home serves as collateral for the lender, which often means that a HELOC has a more favorable interest rate than an unsecured loan, such as a personal loan. It’s important to understand that HELOC interest rates are usually variable, meaning that after a period of time (defined in your HELOC agreement), the rate can adjust up (or down) based on prevailing interest rates.

HELOCs typically have two phases: the draw period and the repayment period.

The Draw Period

During the initial draw period, which typically spans a decade, you can withdraw funds, in any increment they desire, up to the established credit limit. Borrowers are responsible for making interest-only payments during this phase, while principal payments often remain optional. This flexible arrangement enables borrowers to conveniently borrow and repay funds within the specified credit limit according to their needs. Best of all, you only pay interest on the amount of the credit line that you are actively using.

The Repayment Period

The repayment period of a home equity line of credit typically lasts 10 to 20 years. During this phase, borrowing ends, and you pay back the principal with interest. Again, interest rates are variable, so borrowers should be prepared for fluctuations.

Massachusetts HELOC rates change over time, so it’s important to stay informed about potential changes. Using a HELOC repayment calculator can help you estimate what monthly payments might be during the repayment phase, and you can plug in different interest rate numbers to see if you have the appetite for rates if they drift to the higher side.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are linked to lenders’ prime rates, which in turn are influenced by the Federal Reserve’s policy decisions. The prime rate is the rate lenders offer customers with the best credit-usage pedigree. That rate is then adjusted for other borrowers based on the lender’s perception of their default risk. Understanding this might have you tuning into the Fed’s movements more closely than you are accustomed to.

How Interest Rates Impact HELOC Affordability

It’s worth spending a little time following news of the Fed and prime rates because the interest rate you obtain on a HELOC (or any type of home equity loan) has a significant impact on your finances.

The chart below shows what it would be like to enter the repayment phase of a HELOC owing $25,000; $50,000; or $100,000 and how different terms and interest rates would affect your monthly payments. Remember that over the life of a HELOC, a difference of $50 or $100 in the monthly payment could equal thousands of dollars in extra interest paid.

HELOC Interest Rate Trends

Given that HELOC rates closely follow the trends of the prime rate, it pays to have some sense of the history of average prime rates if you’re thinking about a home equity line of credit in Massachusetts. As you can see in the chart below, the prime rate has fluctuated in recent years, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023. The graph below shows a deeper historical perspective: average prime rates over more than a half-century.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate is important, but it’s not the only thing that determines the HELOC rate you might be offered in Massachusetts. Here’s where personal qualifications come into play. Understanding each of the factors below can be instrumental in securing a competitive rate.

Home Equity

Possessing significant equity in your primary residence elevates your financial standing in the eyes of lenders, potentially resulting in more favorable interest rates. You’ll typically need to meet an equity threshold of 15% to 20% to qualify for a HELOC. But the more equity you have, the better.

Credit Score

You’ll probably need a credit score of 680 or even 700 to obtain a HELOC, and again, a higher number will help you get better rates.

Stable Income

Lenders will ask what you earn, but they’ll also be looking at how consistent your earnings are. A stable income indicates a lower risk of default, potentially leading to better HELOC rates.

Loan-to-Value Ratio

Lenders often require a combined loan-to-value ratio of 90% or less. This means the amount you owe on your mortgage plus the amount of your HELOC can’t add up to more than 90% of your home’s value.

Variable vs Fixed Interest Rates

As we’ve pointed out, HELOCs feature variable interest rates, which will fluctuate during the loan term. Variable interest rates start out lower than typical fixed rates but will adjust up or down with market conditions. It’s important to be aware of that before signing on to a HELOC, and to use a HELOC calculator to look at what your monthly payments might be should interest rates rise.

Tools & Calculators

Online calculators can be an invaluable part of the HELOC process. Using them can help you figure out what your borrowing power might be, and show you the monthly cost and total cost of your line of credit. These are a few of our most useful tools:

How to Qualify for a Competitive HELOC Rate

To secure a favorable HELOC rate in Massachusetts, it helps to have a steady and reliable source of income and a good handle on your debts. Below is a list of things you can do before you apply for a HELOC in Massachusetts to put your best foot forward:

Care for Your Credit Score

Pay your bills on time, don’t use your credit cards to the absolute max, and check your credit report for errors. These three steps will go a long way toward getting you the kind of credit score lenders crave.

Assess Your Home Equity

You can use a real estate site to get a general idea of your property value. Then subtract whatever you owe on your mortgage. Divide the answer by your property value and you’ll have your home equity. Ideally it’s more than 20% (and the more the better), though some lenders allow 15%.

Calculate Your Debt-to-Income Ratio (DTI)

Your debt-to-income (DTI) ratio is the amount you owe in monthly debt payments divided by your gross monthly income. It’s a key indicator of your financial health. Lenders prefer a DTI ratio below 36%, though some will go as high as 50%. The lower your DTI, the more attractive your loan application becomes.

Application Process for a HELOC in Massachusetts

There are 6 steps to the HELOC application and approval process. Taking them one at a time and double-checking all the information you supply to ensure accuracy will help prevent bumps along the way. The whole process can take 30 to 60 days:

Step 1. Run the Numbers

Check your credit score, calculate your DTI ratio, and use an online estimate of your home’s value to make sure you have at least 15% home equity before applying for a HELOC.

Step 2. Compare Lenders

Visit lender sites or check in with your bank’s mortgage officer. Don’t just compare interest rates. Look at qualification requirements, minimum and maximum credit lines offered, fees, and the length of the repayment period.

Step 3: Gather Your Documents

You’ll need to have a government-issued I.D. and recent pay stubs, W-2 forms, and a recent tax return at hand for the application process. If you’re self-employed, lenders may ask for two years’ tax returns plus a profit-and-loss statement. There’s a homeowners insurance declaration page as part of most applications, so make sure your insurance on your home is up to date and you have the paperwork. Having these documents ready can expedite the application process and help you secure the best HELOC rates in Massachusetts.

Step 4: Submit Your Application

Submit your HELOC application online or in person, or even over the phone if that’s what the lender recommends. Submitting a complete and accurate application increases your chances of approval without weeks of back-and-forth over missing information.

Step 5: Get an Appraisal

After you submit your application, a home appraisal is typically required. This might be an in-person appraisal, though some lenders use an automated valuation model (AVM) appraisal, where an algorithm crawls data to compute estimated value. The appraisal helps determine the amount of equity you have in your home, which affects the HELOC rate you’ll qualify for. A higher appraisal value can lead to a larger line of credit.

Step 6: Prepare for Closing

Once you find a HELOC offer you consider suitable, you’re ready to close on the agreement. Before accessing your HELOC funds, you’ll sign loan documents and pay necessary fees. Lenders can make funds available as quickly as three days after you’ve signed your HELOC agreement.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Interest deductions are limited to the interest paid on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consult a tax advisor for help navigating this deduction (you’ll have to itemize deductions on your return).

Closing Costs and Fees

HELOC closing costs are lower than home-buying or refinancing costs. Appraisal fees are usually the highest expense, ranging from $300 to $600. Other costs include application, origination, and administrative fees. Some lenders charge annual maintenance, transaction, inactivity, or early termination fees. Consider these costs when applying for a HELOC.

Alternatives to HELOCs

In addition to HELOCs, other possible financing options include home equity loans, cash-out refinancing, and personal loans. Looking at each of these in detail will help you choose the most suitable method for your specific financial requirements.

Home Equity Loan

Unlike HELOCs which function somewhat like a credit card, a home equity loan provides a lump sum amount and is paid back at a fixed interest rate. Borrowers can usually access up to 85% of the equity built in their home through a home equity loan.

To understand the HELOC vs. home equity loan comparison, take a quick look at the chart below:

Cash-Out Refinance

A cash-out refinance is a mortgage refinance with a twist: Homeowners can refinance their mortgage for more than they owe. They pay off their first mortgage and then take the cash that remains and use it for any purpose.

Two things to think about when considering a cash-out refinance vs. a home equity line of credit A cash-out refi leaves you with one monthly payment, as opposed to two. However, it also leaves you with a brand-new interest rate. And if that rate is not as favorable as the rate on your initial mortgage, this method may not be the best choice for you.

Personal Loan

A personal loan is repaid in regular installments over a predetermined duration, typically two to seven years. Some borrowers like the idea of having a loan that is not secured by their home. However, personal loan interest rates rarely beat out rates for a HELOC or home equity loan, so if you are comfortable using your home as collateral, you might find it to be a more affordable way to borrow.

Credit Cards

While credit cards are well suited to making everyday purchases, they have higher interest rates than HELOCs, making them a more expensive way to carry a large balance.

The Takeaway

HELOCs offer a versatile way to access the equity in your home. You withdraw only what you need at any given time, and can use it for all sorts of purposes. Understanding the terms and rate of a home equity line of credit is crucial for making an informed financial decision. It’s important to realize that HELOCs’ variable rates rise or fall over time, so monthly payments are rarely consistent. Using a HELOC repayment calculator can be a smart way to get comfy with this variability.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

Assuming you’re using the entire $50,000 credit line, the monthly payment will vary depending on the interest rate and term. A rate of 7.00% and a 20-year term will get you a $388 monthly payment. A rate of 8.00% and a shorter term of 10 years will equal a monthly payment of $607.

Is a HELOC a good idea right now?

If you need a significant sum of money and have a solid credit score and have built up equity in your home, a HELOC is a good way to borrow money at a lower interest rate than you would find available with many other methods.

What is the monthly payment on a $100,000 HELOC?

To calculate the monthly payment on a $100,000 HELOC, it’s best to use a HELOC monthly payment calculator, which will take into consideration how much of the line of credit you have used, your current interest rate, and the repayment term of your HELOC.

What are the benefits of a HELOC?

HELOCs offer several benefits, including competitive interest rates, flexible repayment terms, and the ability to borrow (and pay interest on) only what you need at any given time. A home equity line of credit can be used for various purposes, such as home improvements, debt consolidation, and education expenses. Additionally, the interest paid on a HELOC is sometimes tax-deductible, providing further financial advantages.

Do you need an appraisal for a HELOC?

Yes, you typically need an appraisal for a HELOC. The appraisal helps determine the value of your home, which is crucial for calculating the amount of equity you can borrow.

What disqualifies you from getting a home equity loan?

Several factors can disqualify you from getting a home equity loan. These include a low credit score, insufficient home equity, high debt-to-income ratio, and unstable income. It’s important to assess your eligibility for a home equity loan or home equity line of credit before applying.

How difficult is it to get a HELOC?

The difficulty of getting a HELOC depends on your financial health and the lender’s requirements. Generally, you’ll need a credit score of 680 or more, at least 15% equity in your home, and a debt-to-income (DTI) ratio of 50% or less. If your earnings are not consistent, you may find that you have to provide extra financial documentation so that a prospective lender is comfortable with your ability to repay what you borrow.

Does HELOC affect credit score?

Yes, a HELOC can affect your credit score. Applying for a HELOC may result in a hard inquiry on your credit report, which can temporarily lower your score. Additionally, using a significant portion of your available credit line can increase your credit utilization ratio, which can negatively impact your score. However, making timely payments on your home equity line of credit can help improve your credit score over time.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-031