: The latest HELOC rates — and what to know before you take one out

Average home equity line of credit (HELOC) rates for 10-year loans ticked up slightly to 6.09% from 5.96% the week prior, according to Bankrate data from the week ending August 15. Rates on 20-year HELOCs hit 7.36% and 30-year HELOCs increased to 5.92% up from 5.82% the week prior. (See the lowest HELOC rates you can get here.)

Considered one of the most affordable loan types, especially for homeowners with significant equity in their homes, HELOCs can be a great option for borrowers looking to consolidate high-interest debt or fund home improvement projects. But it’s important to remember that if you don’t repay a HELOC, you could lose your home, because you’re putting it up as collateral when you take out the loan.

How do HELOCs work?

HELOCs are typically composed of a two-part structure; most commonly a 10-year draw period and a 20-year repayment period that together equal a 30-year term. A borrower can withdraw as much or as little money as they like during the draw period, but after the repayment period begins, money can no longer be withdrawn and the borrower must pay back the principal in addition to interest. Because HELOCs are based on the amount of equity someone has in their home, the amount of money a borrower qualifies for will vary. (See the lowest HELOC rates you can get here.)

How to get a better rate on a HELOC

Borrowers with higher credit scores, lower debt-to-income (DTI) ratios and substantial equity in their home tend to get the best rates on HELOCs, often with lower interest rates than they’d receive on credit cards or personal loans. To calculate your DTI, add up your monthly bills including your house payment, credit card, child support, insurance, other debts, etc. and divide the total by your gross monthly income. The number that lenders are looking for you to churn out should be 36% or lower to ensure you not only get approved, but to help you get the best rates and terms on a HELOC.