How to choose a HELOC lender
The advertised rate is the least useful number. These questions get at the real cost.
Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated
How do you choose a HELOC lender?
To choose a HELOC lender, compare the margin over prime, all fees, the draw and repayment terms, fixed-rate options, and the lifetime cap. Then weigh speed and service, and get at least two written quotes. The margin is usually the most important number, more than an advertised intro rate.
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Putting two quotes side by side
| Lender A | Lender B | |
|---|---|---|
| Intro rate | 6.99% for 12 months | None |
| Margin after intro | Prime + 1.25 | Prime + 0.50 |
| Closing costs | $0 (3-year early-closure fee of $450) | $650 |
| Annual fee | $75 | $0 |
| Fixed-rate lock | No | Yes, up to 3 locks |
Lender A looks cheaper in year one. On a $60,000 balance kept for five years, Lender B's lower margin saves about $450 a year after the intro ends, more than covering its closing costs. The margin is usually the most important number.
Use a free calculator, or get your HELOC rate from Shawn.
Lender types and who they suit
- Your own bank: relationship discounts and convenience; often conservative on credit and loan-to-value.
- Credit unions: low fees and competitive margins; membership required.
- Online and fintech lenders: fast, with automated valuations; often fund most of the line at closing.
- Home equity specialists: higher loan-to-value, lower credit scores, unusual properties.
- A mortgage broker: compares several lenders with one application. Comparing lenders.
Red flags
- Pressure to borrow more than you asked for.
- Reluctance to put the margin, cap and fees in writing.
- A required credit insurance product.
- Fees that only show up at signing. You should see them on the disclosures beforehand.
Ten questions
- What's my margin over prime, and is there an intro rate?
- What are the closing costs, and who pays them?
- Is there an annual fee?
- Is there an early-closure fee, and for how long?
- How long are the draw and repayment periods?
- Can I lock part of the balance at a fixed rate?
- What's the lifetime cap and the floor?
- Is there a minimum draw?
- How is the home valued?
- How long to close?
Lender types
Banks, credit unions, online lenders and brokers each have strengths. A broker with access to many lenders can price several options in one application. Lender reviews.
Your comparison checklist
- Margin after any intro rate.
- Intro rate and how long it lasts.
- Lifetime rate cap and any floor.
- Closing costs, annual fee, early-closure fee.
- Draw period, repayment period, and minimum payment.
- Fixed-rate lock options.
- How you draw and how quickly funds arrive.
- Estimated closing timeline.
Mistakes to avoid
- Choosing on intro rate alone.
- Ignoring early-closure fees when you might sell.
- Not asking about the cap and fixed-rate options.
- Comparing quotes from different dates as rates move.
Related question: What is a good HELOC rate?
Also asked
Should you get a HELOC from your current mortgage servicer?
Only if its offer is competitive. Your current mortgage servicer may not be a HELOC lender at all, and being your servicer doesn't mean it offers better terms, so compare its quote with others.
How many HELOC quotes should you get?
Two or three HELOC quotes is usually enough. More than that rarely helps, and each application may involve a credit check. Compare the margin, fees and terms in writing.
Is using a mortgage broker more expensive for a HELOC?
Not necessarily. A mortgage broker can compare several HELOC lenders with one application. However you shop, compare the final margin and fees rather than who arranged the quote.
Is the HELOC lender with the lowest intro rate the best?
Not necessarily. A HELOC intro rate is temporary, while the rate after it ends, prime plus the margin, lasts much longer. Compare that margin first, since it is usually the most important number.
What service questions should you ask a HELOC lender?
Ask each HELOC lender how quickly it closes, how you draw and how quickly funds arrive, whether you can lock a fixed rate online, and who to call with problems.
Does a local HELOC lender close faster?
Not necessarily. Many online lenders use automated valuations and e-signing and close within two weeks. Local banks and credit unions can be better for unusual properties, condos with complicated HOAs, or borrowers who want to meet in person. Ask each lender for its typical time from application to an open line.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Regulation Z §1026.40: Requirements for home equity plans · Consumer Financial Protection Bureau