Q&A: When a HELOC rate is too good to be true

Dear Liz: My current home mortgage rate is 5%. I owe about $340,000 on the house and have about $300,000 in equity. My credit union is offering a home equity line of credit with a rate of 3%. Would it be a good idea to take out a HELOC at that rate and use those funds to pay down or pay off my mortgage?

Answer: Prevailing HELOC rates are closer to 9%, so what you saw is likely a teaser rate that would eventually expire. After that, you’d pay the regular variable rate, which would rise and fall with prevailing interest rates up to a predetermined cap, which is usually 18%.

So no, it’s not a good idea to give up your current relatively low rate. HELOCs and other variable-rate loans are a better fit for short-term borrowing that you can pay off relatively quickly.


  1. We own our home ($350K+ value). We have $1M+ in retirement savings. I am 50 and my husband is 49. We don’t have a lot of cash available, but we do have Roth IRAs that we’ve held since 2016. We would like to buy a piece of property to build on eventually. Can you give us a suggestion as to what’s an advisable way to do this? Home Equity Loan (not HELOC) for the down payment? Take out contributions from our Roths (not included in the retirement savings noted above)? Thank you!