Places to Check HELOC Rates: State-by-State Credit Union Rates Bankrate Survey Summary

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The single most important factor to consider when comparing HELOC loans are the HELOC rates used. HELOC loans almost always are adjustable rate loans meaning that the interest rate will change over the loan's life. The components of the HELOC rate and the factors that cause the HELOC rate to adjust therefore should be clearly understood by HELOC users.

Index - Variable-rate HELOC loans require an index: the market interest rate that serves as the foundation for the loan rate. An example would be a HELOC priced at .5% over the prime rate. The prime rate is the most popular index for HELOCs because most people are somewhat familiar with it, and because it’s relatively stable. The prime is defined as the base rate on corporate loans posted by at least 75% of the nation's largest banks. In practice, most banks use the prime as quoted in the Wall Sreet Journal. The prime rate changes irregularly; when it does change, it’s usually front-page news, so borrowers aren’t likely to be surprised when their HELOC rate changes too. For these reasons, the prime rate is the index of choice among lenders.

A few other indexes are used by some lenders:

• 1-year Treasury Bond HELOC - One-year Treasury bond rates change every week, which make them an administrative hassle for both borrowers and lenders. For this reason, few lenders use this as a HELOC index.

• LIBOR HELOC - The LIBOR (London Interbank Offering Rate) is an international rate index used by some HELOC lenders. LIBOR HELOCs typically offer borrowers aggressive initial rates, often lower than prime-rate HELOCs. LIBOR HELOCs are not as popular as prime-rate HELOCs mostly because the general public is unfamiliar with the LIBOR index. Nonetheless, a LIBOR-indexed HELOC can be favorable for the borrower and should be considered if offered.

Use the chart above to compare current rates and historical trends for the prime rate, LIBOR and US Treasury Note rate.

Spread (or Margin) - The margin is simply the percent added (or subtracted) to the index to determine the actual HELOC loan rate at any given time. Typically, HELOC rates are expressed as prime (the index) plus .50% (the margin). As you can see, the lower the margin, the better unless you are fortunate enough to have a margin that is subtracted from the index, in which case a larger margin is better.

Adjustment Frequency - If the index interest changes, loan agreements typically provide that the HELOC rates will adjust monthly (on the last day, 15th, etc.). Some HELOCs may adjust on a quarterly basis which can provide some measure of additional protection when interest rates are rising rapidly.