Compare HELOC rates in North Carolina.

Introduction to HELOC Rates

Understanding the home equity line of credit and how to get the best interest rate possible is crucial if you’re looking to get equity out of your home. A HELOC allows borrowers to access funds based on their home’s value. This article provides a comprehensive overview of HELOC rates and the HELOC process in North Carolina. Readers will learn about the factors influencing rates, how to compare offers, and the strategies to employ to secure the best deals. We’ll even cover alternatives to HELOCs and different types of home equity loans. We’re going to start with the basics: What is a HELOC, anyway?

What Is a HELOC?

HELOCs function somewhat like a credit card, but they are secured by your home. You apply for a HELOC and, if accepted, are given a credit line with a limit. You can borrow up to that limit in increments as you need the funds, and you can repay what you borrowed (with interest) and borrow again repeatedly during the initial “draw” phase of the HELOC.

Lenders often allow homeowners to borrow up to 90% of their home value with a HELOC (minus whatever they owe on their mortgage). HELOCs often have lower interest rates than credit cards and personal loans. But their interest rates are often variable and can shift up or down over time. The major downside of a HELOC is that you risk foreclosure if you default.

HELOCs have two phases: After the draw period, there is a repayment term. It’s important to understand how they differ.

The Draw Period

During a HELOC’s 10-year draw period, you can access funds, make payments, and borrow again. Interest payments are usually required, but principal payments may be optional. This flexibility makes HELOCs versatile financial tools. A HELOC interest-only calculator can show you what interest-only payments would look like during the draw period of a HELOC.

The Repayment Period

During what is typically a 10- or 20-year repayment period, borrowers repay what they have borrowed, with interest. A HELOC repayment calculator is useful during this time as you can type in your interest rate and see how monthly payments will be affected by a rate change.

Where Do HELOC Interest Rates Come From?

Interest rates are important to the overall cost of your HELOC, so it’s important to understand the factors that might affect the rate you will be offered, as well as the rate shifts you’ll experience over the life of your HELOC. At the most basic level, HELOC rates are driven by lenders’ prime rates — the rate each lender offers their most creditworthy customers. Prime rates are dictated to some extent by rates set by the Federal Reserve.

How Interest Rates Impact HELOC Affordability

HELOC interest rates significantly impact affordability over both the draw and repayment periods. The chart below shows how a shift in the interest rate or the repayment term affects your monthly payments as well as the total amount of interest paid over the life of the HELOC.

HELOC Interest Rate Trends

Don’t be surprised if you find yourself paying close attention to news of the prime rate and Fed policy in the weeks leading up to your HELOC application. Having a sense of the history of the average prime rate can give you valuable perspective on current rates.

The chart below shows that since 2018, the prime rate has ranged from a low of 3.25% in 2020 to a high of 8.50% in 2023. And the graphic below shows a much longer period of time. As you can see, rates under 4.00% are relatively uncommon, as are rates that top 10.00%.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate is important, but there are several other factors that lenders use to help them determine what HELOC rate to offer an applicant:

Home Equity

Generally, a minimum of 15% to 20% equity is required to qualify for a HELOC. But having more significant home equity places you in a lower-risk category for lenders, potentially leading to reduced interest rates.

Credit Score

A credit score of 680 or higher is a solid entry point for a HELOC, but again, higher is better and some lenders like to see a score of 700 or more.

Stable Income

A steady stream of income serves as a reliable indicator of reduced default risk, which often translates into more favorable HELOC rates. By maintaining consistent employment and a steady income, you can significantly bolster your prospects of securing advantageous terms for your HELOC.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio to be 90% or less. (Your CLTV is your current mortgage principal owed plus the amount you wish to borrow divided by your home’s appraised value.)

Variable vs Fixed Interest Rates

As noted above, HELOCs typically have variable interest rates, which will fluctuate over the loan term. Variable interest rates start out lower than typical fixed rates but will adjust up and down with market conditions. When you compare HELOCs vs. home equity loans, this is a primary point of difference. Home equity loans tend to have a fixed rate.

Tools & Calculators

Online calculators can help you determine how large a HELOC you might be eligible for and how much your monthly payments would be based on different interest rates. They can also show you the total cost of your HELOC.

How to Qualify for a Competitive HELOC Rate

To secure the most favorable HELOC rates available in North Carolina, it is advisable to focus on enhancing your credit score, maintaining a steady source of income, and managing your debt-to-income ratio effectively. Here are some pointers:

Take Care of Your Credit Score

By maintaining timely payments and reducing credit card balances, you can enhance your credit score, which is a crucial factor in securing more favorable HELOC rates. Regularly reviewing your credit report and addressing any discrepancies can further strengthen your creditworthiness.

Assess Your Home Equity

You’ll probably need at least 15% home equity in order to qualify for HELOC. To determine whether you’ve hit that mark, look up your home’s value on a real estate site. Subtract whatever you owe on your mortgage. Then divide that number by the home value. The more equity you have, the better terms and higher HELOC limit you will likely qualify for.

Calculate Your Debt-to-Income Ratio (DTI)

Your DTI ratio is how much you owe in monthly debt payments divided by your gross monthly income. Home equity lenders generally look for a DTI that’s below 50%, and some prefer below 36%. Managing your DTI is crucial for securing favorable terms on a HELOC.

Application Process for a HELOC in North Carolina

The application process for a HELOC in North Carolina involves several steps. These include evaluating your financial situation, comparing HELOC rates in North Carolina, gathering the necessary documentation, and submitting your application. Understanding the process can help you navigate it more efficiently.

Step 1. Run the Numbers

Some lenders allow prospective borrowers to prequalify for a home equity line of credit online, which streamlines the application process. These lenders will calculate your DTI ratio and equity. If you don’t prequalify online, you’ll need to do the math by hand. First make sure you have at least 15% equity. Then see if you have a DTI ratio of less than 36%. If you tick both boxes, move on to Step 2.

Step 2. Compare Lenders

Look at interest rates from multiple lenders, and also compare their qualification requirements, credit line minimums and maximums, fees, and the lengths of their draw and repayment periods.

Step 3: Gather Your Documents

Putting together the paperwork (even if you apply online) is a crucial step in the HELOC application process. Typically, you’ll need to provide proof of income, like pay stubs or tax returns, and disclose the balance on your mortgage. Lenders may want to see your homeowner’s insurance coverage and a list of your current assets and debts.

If you’re self-employed, prospective lenders may ask for a profit-and-loss statement and two years’ tax returns. Having these documents ready can speed the application process and improve your chances of securing a competitive HELOC rate.

Step 4: Submit Your Application

Submitting your HELOC application online or in person is the next step. Submitting a complete and accurate application increases your chances of approval and helps you secure competitive HELOC rates in North Carolina.

Step 5: Get an Appraisal

After you submit your application, a lender will usually request a home appraisal. This might be an in-person appraisal, or a lender may use an automated valuation model (AVM) appraisal, where an algorithm uses existing data to compute a home’s estimated value. The appraisal helps confirm the amount of equity you have in your home, which affects your HELOC rate. A higher appraisal value can lead to a larger line of credit.

Step 6: Prepare for Closing

Once you find a HELOC offer with a comfortable interest rate and terms, you’re ready to close. Before accessing your funds, you’ll sign documents and pay necessary fees. Lenders can make funds available as quickly as three days following the closing of the HELOC. Ensuring all paperwork is in order and fees are paid promptly helps you access your funds quickly and efficiently.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Deductions are limited to interest on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consult a tax advisor to confirm eligibility. You will need to itemize your return to take this deduction.

Closing Costs and Fees

HELOC closing costs are lower than typical home-buying or cash-out refinance costs. Appraisal fee, usually the highest expense, ranges from $300 to $500. Other costs include application, origination, and administrative fees. Some lenders charge annual maintenance and transaction fees. Lenders may waive closing costs but when this happens, they tend to charge a higher interest rate.

Alternatives to HELOCs

In addition to HELOCs, there are other financing options — even a special type of mortgage refinance that can help you capitalize on your home equity. Here are the more popular borrowing methods.

Home Equity Loan

Homeowners who are interested in a HELOC also often wonder what is a home equity loan. Unlike HELOCs, home equity loans provide a lump sum and are paid back at a fixed interest rate. Borrowers begin paying back the principal, plus interest, immediately after receiving the funds. You can usually access up to 85% of your home equity through a home equity loan (as opposed to 90% with a HELOC).

Cash-Out Refinance

Homeowners can get cash by refinancing their mortgage for more than they owe. Some borrowers like the fact that the refi leaves them with one monthly payment (versus two when you add a HELOC or home equity loan to an existing mortgage).

As you’re thinking about a cash-out refinance vs. a home equity line of credit, one consideration is that a refi will leave you with a new interest rate. If your current home loan has a better interest rate than is now available in North Carolina, a refi may not make sense. You’ll want to compute the total cost of borrowing with the refi and compare it to a HELOC or home equity loan.

Personal Loan

A personal loan is repaid in consistent payments over a predetermined period that typically ranges from two to seven years. Personal loans are unsecured, so the interest rate will likely be higher than that of a HELOC or home equity loan.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can make them much more expensive if you carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, a HELOC may be better suited for larger expenses.

The Takeaway

HELOCs offer a flexible way to access the equity in your home, and with a little preparation, you can better your chances of obtaining the best available HELOC interest rate in North Carolina. By understanding current rates and the factors influencing them, you can make an informed decision about your home equity line of credit. Comparing offers from multiple lenders and maintaining a strong credit score are also key to securing the best rates.

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?

With an 8.00% interest rate, your monthly payment will be about $607, assuming you are repaying the $50,000 over a 10-year term. But precisely how much you’ll pay will depend on your interest rate and loan term. The same 8.00% interest rate over a 20-year term would cost you $418 per month.

Is a HELOC a good idea right now?

Because HELOCs usually have lower interest rates than unsecured loans or credit cards, a HELOC tends to be a good way to borrow if you need a large sum — and especially if you aren’t sure exactly how much money you will need and when, exactly, you will need it. But of course, whether a HELOC is a good idea for you will depend on your financial situation. If you are having trouble paying your current home loan or credit cards on time, it might not be a great time to borrow more.

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

The best way to ascertain the monthly payment for a $100,000 HELOC is to utilize a HELOC monthly payment calculator, because the payment amount will vary according to your interest rate, which changes from time to time, and the repayment term (10 versus 20 years).

What are the benefits of a HELOC?

Perhaps the greatest benefit of a HELOC is that it is very flexible: You can borrow what you need when you need it (up to your credit limit) and you only pay interest on the sum that you borrow. HELOCs also offer potentially lower interest rates compared to credit cards. Additionally, interest paid on a home equity line of credit may be tax-deductible, depending on how the funds are used.

Do you need an appraisal for a HELOC?

Yes, you typically do need an appraisal for a HELOC. The appraisal helps the lender determine the current value of your home, which is crucial for calculating the amount of equity you can borrow. An accurate appraisal is essential for securing a home equity line of credit.

What might prevent you from getting a home equity loan?

Several factors can disqualify you from getting a home equity loan. These include a low credit score, high debt-to-income ratio, insufficient home equity, and a history of late payments or default.

How difficult is it to get a HELOC?

The difficulty of getting a HELOC depends on your financial situation. Lenders consider factors such as your credit score, debt-to-income ratio, and home equity. To improve your chances, focus on maintaining a strong credit score, reducing debt, and increasing your home equity. Comparing offers from multiple lenders can also help you find the best terms for your HELOC; the difficulty level may be different from one lender to another.

Does a HELOC affect credit score?

Having a HELOC can affect your credit score. When you apply for the line of credit, the lender will do a hard credit inquiry, which causes a temporary dip in your score. Using a significant portion of your HELOC may increase your credit utilization ratio, potentially dinging your score. On the up side, timely payments can positively affect your credit score.

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