How Is My HELOC Rate Calculated?

Your HELOC rate is an index plus a margin. The index is commonly the prime rate, which was 7.00% on October 22, 2026, and the margin is a fixed number of percentage points the lender adds based on your credit history, income, and how much of your home's value you are borrowing. When the index moves, your rate moves with it at each adjustment date, but never above the maximum rate your agreement must state.

What are the index and the margin?

The index is a published rate that the lender does not control. Federal HELOC rules allow a lender to change your rate only when the change is based on an index outside its control and available to the public. The CFPB names the U.S. prime rate and the Constant Maturity Treasury (CMT) rate as common HELOC indexes. The prime rate is the rate posted by a majority of the 25 largest U.S. banks, and the Federal Reserve publishes it daily in its H.15 release.

The prime rate moved from 8.50% in mid-2024 down to 6.75% in December 2025, then rose to 7.00% on September 17, 2026, where it stood on October 22, 2026.

The margin is the amount the lender adds to the index. It is set when you open the line and stays the same for the life of the plan unless your agreement says otherwise. The FTC says your rate depends on your income, your credit history, and the market value of your home. So a stronger credit history, or a lower combined loan-to-value ratio (all loans on the home divided by its value), generally earns a smaller margin. Ask each lender for its margin at your credit score and CLTV.

What other rate terms are in a HELOC agreement?

• Introductory rate. Some lenders offer a discounted starting rate, which the CFPB describes as unusually low for a short period such as 6 months. After it ends, the rate resets to the index plus your margin.
• Maximum rate (cap). Federal rules require every variable-rate loan secured by a home, including a HELOC, to state the highest rate that can apply during the term. The lender must also show you the minimum payment on a $10,000 balance at that maximum rate.
• Periodic limits. Some plans limit how much the rate can rise each year. These limits are optional; the lender's disclosure must say whether one exists.
• Floor. Some plans set a minimum rate, so your rate stops falling even if the index keeps dropping.
• Adjustment frequency. The agreement states how often the rate can change.
• Fixed-rate option. Some HELOCs let you lock part of your balance at a fixed rate. The CFPB notes the fixed rate is typically higher than the variable rate, in exchange for predictable payments on that portion.

Before you open the line, the lender must also give you a 15-year history showing how the rate and payments on a $10,000 balance would have changed under the plan's index. Use it to see how far the rate has moved in past years.

How does a change in the prime rate change your payment?

Worked example: You owe $40,000 on a line with interest-only payments during the draw period. Your margin is 0.75 percentage points, your introductory rate is 5.99% for 6 months, and your maximum rate is 18%.

Each 1 percentage point move in the prime rate changes the interest on a $40,000 balance by about $33 a month. When the draw period ends, you start repaying principal too: at 7.75%, repaying $40,000 over 15 years costs $376.51 a month. How a HELOC works covers that switch from draw to repayment.

A HELOC adjusts much like an adjustable-rate mortgage, except that the balance can also change each month as you draw and repay.

How much lower is a HELOC rate than other borrowing?

A HELOC rate is usually far below credit card and personal loan rates, but it is often higher than a first mortgage rate.

On a $40,000 credit card balance at 22.15%, monthly interest is $40,000 x 0.2215 / 12 = $738.33. At a 7.75% HELOC rate, it is $258.33, which is $480 less each month. That gap is why borrowers use HELOCs to pay down card debt, but the savings disappear if the card balances build back up. Using a HELOC to lower debt payments covers that decision.

Against a first mortgage, the comparison runs the other way. The CFPB notes that second mortgages, including HELOCs, often carry higher rates than first mortgages because they are repaid second if the home is sold to pay its debts. If your first mortgage rate is below the 7.32% average, a HELOC lets you borrow against your equity without refinancing the whole mortgage balance at a higher rate. What it means to refinance a mortgage explains when a cash-out refinance makes more sense.

A home equity loan usually has a fixed rate set at closing. Compare that fixed rate with the HELOC's current rate and its maximum, not just today's starting rate. HELOC or home equity loan goes through that choice.

How do you compare HELOC rate offers?

The FTC notes that a HELOC's APR reflects interest only and leaves out points and other financing charges, so it is not directly comparable with the APR on a closed-end loan. Interest rates compared with APRs explains the difference for mortgages. For each HELOC offer, write down:

1. The index and its current value.
2. The margin, and whether it changes after an introductory period.
3. The introductory rate and how many months it lasts.
4. The maximum rate, any annual limit, and any floor.
5. Whether you can lock part of the balance at a fixed rate, and at what rate.
6. Up-front and ongoing fees.

The CFPB's booklet suggests comparing three offers. With the same index value on each, the offer with the lowest margin will have the lowest rate after any introductory period ends, provided no offer's floor or cap overrides its index-plus-margin rate.