Is now a good time to take out a HELOC?

Are you a homeowner looking to tap into your home’s equity? Taking out a home equity line of credit (HELOC) on your house could be a good idea.

The Federal Reserve announced at its July meeting that it was holding the federal funds rate steady, and mortgage rates remained flat after that announcement. The Fed might lower the rate at its September meeting, but a lot could happen before then to affect its decision.

However, whether it’s a good time to take out a HELOC is a complicated question that depends on more than just interest rates. You should consider numerous factors, including your financial situation, what you’re using the money for, and more.

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Before deciding if now is the time for a HELOC, you should thoroughly understand what a HELOC is and how it works. A home equity line of credit is a second mortgage that works as a revolving credit line based on your home’s equity.

“Home equity” refers to the value of your home minus your outstanding mortgage balance. For example, your home is worth $400,000, and you still owe $250,000 on your original mortgage loan. You have $150,000 — or 37.5% — equity in your home. ($400,000 – $250,000 = $150,000.)

Homeowners take out HELOCs for various reasons, such as financing home improvements, paying off loans or other debt, putting a down payment on a second property, or even using the cash as a temporary emergency fund.

There are two main types of HELOCS: interest-only and fixed-rate.

With interest-only HELOCs, you make payments solely on the interest during the HELOC’s draw period. Once the repayment period begins, your monthly payments increase to pay off both the interest and principal.

Interest-only HELOCs usually have variable rates that change periodically. Meanwhile, with fixed-rate HELOCs, you can switch all or some of your balance into a fixed-rate loan. That section of your HELOC essentially acts as a home equity loan.

Dig deeper: HELOC vs. home equity loan — What are the differences?

Taking out a home equity line of credit has advantages and disadvantages, especially in today’s housing market, which has high home values, high interest rates, and a volatile economy.

• Take advantage of your home’s value: Houses have appreciated significantly over the last few years. If your house has gained a lot of value, you might be able to get a hefty bit of cash by taking out a HELOC now.

• Flexible credit line for any expense: HELOCs let you take out money at any time during the draw period (which typically lasts for 10 years on a 30-year term) and use it for any expense.

• Lower interest rates: While interest rates for all kinds of loans are high right now, HELOCs still generally charge lower interest rates than alternatives such as credit cards and personal loans. Some HELOC lenders even offer an introductory low-APR period.

• You put your home at risk: Two monthly mortgage payments can be overwhelming, especially during the HELOC repayment period, when your payment is higher. If you fail to make payments on your original mortgage or HELOC, you put your home at risk of foreclosure.

• Variable interest: Most HELOCs charge variable rates, which could be a pro or con depending on whether rates are expected to increase or decrease in the future. Although economists expect rates to go down in the next couple of years, no one has a crystal ball for what rates will do over the next 30 years. Make sure you can afford the monthly payment at the upper end of the interest range as well.

• Closing costs: Many HELOCs charge closing costs — although some lenders, such as Navy Federal Credit Union, don’t impose these fees.

Home equity line of credit interest rates are variable, meaning they change periodically. Some lenders offer an extra-low rate at the beginning of your term before bumping you up to a regular rate — and even then, your rate can change (unless you get a fixed-rate HELOC as mentioned above). Right now, the typical HELOC rate is between 8% and 9%.

Still, HELOC interest rates tend to be lower than other alternative forms of credit, such as credit cards, personal loans, or personal lines of credit. Additionally, many HELOC lenders offer special introductory APRs to start.

HELOC rates are not necessarily expected to plummet anytime soon. Most experts predict that interest rates on first mortgages will stay firmly in the low-to-high 6% range in 2025, as they have for the bulk of this year and the previous one.

However, it’s normal for interest rates to be higher on second mortgages than on first ones. So, 8% to 9% HELOC interest rates could remain the standard for a while.

Home values across the country have skyrocketed over the last several years. While this is not so great for prospective home buyers, it can be hugely beneficial to current homeowners looking to cash in on their house’s value.

According to Zillow, the median home value was $369,147 as of June 2025. Five years prior, the median home value was $259,340. That’s an increase of $109,807, or over 42%.

The combination of paying down your mortgage balance and living in an appreciating home could give you quite a bit of equity, making a HELOC a worthwhile choice for people covering large expenses.

Dig deeper: How much is my house worth? How to determine your home value.

Because HELOC rates aren’t expected to plummet anytime soon, now is a relatively good time to consider taking out a HELOC if you feel it benefits your situation. Still, there are a few things to consider about your home itself and current market conditions.

• How much home equity do you have? Most lenders will require you to have at least 15% to 20% equity in your home before taking out a HELOC, meaning you have a minimum of 80% to 85% left to pay on your mortgage.

• What are lenders offering? Many big-name HELOC lenders offer APRs ranging from 6.5% to over 20%. The better your financial profile, the lower your rate will be. Right now, some lenders offer special incentives, such as a lower APR for the first few months. So, if you’re seriously considering a HELOC, shop around for any perks or discounts.

Applying for a HELOC is a relatively simple process. First, research various HELOC lenders and compare their terms, rates, and closing costs.

Once you find the lender you want to work with, ensure you have all the necessary documents to apply, such as your identification, a recent mortgage statement, proof of income, and proof of homeowners insurance.

From there, you can apply online or in person. After you’ve submitted your application, your home will undergo the mortgage underwriting process, which will determine if your home is eligible for a HELOC. This process can take several weeks. If your application is approved, you can sign the final paperwork and access your HELOC funds.

In almost all cases, you need to prove a strong financial profile to qualify for a HELOC. An ideal borrower usually has proof of income, a minimum 680 credit score, and plenty of untapped equity in their home (most lenders require between 15% and 20%). HELOC lenders also require you to have homeowners insurance and a debt-to-income ratio (DTI) of 43% or less. Because home values are high right now, you might meet the home equity requirement. If you aren’t eligible based on other factors, work on increasing your credit score or paying down debt.

Home equity loans can be a good fit if you prefer fixed, predictable monthly payments and want a lump sum of cash rather than a revolving line of credit. Meanwhile, HELOCs allow homeowners to access funds when needed and only pay off the interest during the draw period. You also won’t pay interest on any money you don’t withdraw, which is good for borrowers who don’t know how much cash they’ll end up using. While home equity loans have fixed rates, a HELOC’s variable rates could be preferable since interest rates are expected to inch down in the near future.

While a HELOC is a second mortgage that acts as a revolving line of credit, a cash-out refinance pays off your existing mortgage and results in a new mortgage loan. This means you’ll replace your current mortgage with a new one with a different interest rate. Mortgage rates are relatively high right now, so if you currently have a low rate that you don’t want to give up, you may want to keep your original loan and add on a HELOC.

Laura Grace Tarpley edited this article.