National average rates for home equity lines of credit and lump-sum home equity loans have moved closer to 7%. Second mortgage rates are now at their lowest point in years.
Data from Curinos shows the average monthly HELOC rate has declined to 7.25%, a drop of 19 basis points from one month ago. The national average rate for a home equity loan stands at 7.56%, down three basis points.
These figures apply to applicants with a credit score of at least 780 and a combined loan-to-value ratio under 70%.
The Federal Reserve estimates homeowners hold $36 trillion in home equity. With primary mortgage rates remaining high, some homeowners may find accessing this equity through a second mortgage, like a HELOC or home equity loan, a practical option.
Second mortgage rates differ from primary mortgage rates. They are typically set by adding a margin to an index rate, often the prime rate, which recently decreased to 6.75%. For instance, a lender adding a 0.75% margin would result in a 7.50% HELOC rate. Home equity loans, being fixed-rate products, may have different margins.
Lenders can adjust pricing on these products, so comparing offers is advised. Rates depend on credit score, debt level, and the credit line amount relative to home value.
National average HELOC rates can include introductory rates lasting six months to a year, after which rates become adjustable and usually higher. Home equity loans generally do not feature such introductory rates.
Some lenders offer below-market introductory rates. FourLeaf Credit Union currently provides a HELOC APR of 5.99% for 12 months on lines up to $500,000, converting to a variable rate afterward. Borrowers should note both rates when shopping.
HELOCs may have minimum draw requirements, while home equity loans provide a lump sum without such minimums. Comparing fees and repayment terms is recommended.
Rates vary by lender and location, ranging from nearly 6% to 18%, influenced by creditworthiness and shopping effort. The current national averages are 7.25% for HELOCs and 7.56% for home equity loans.
For homeowners with low primary mortgage rates and substantial equity, now may be a favorable time to consider a HELOC or home equity loan, allowing cash use for home improvements without altering the existing mortgage.
On a $50,000 HELOC at a 7.50% rate, the monthly payment during the 10-year draw period would be approximately $313. However, as rates are typically variable, payments can increase during the subsequent 20-year repayment period, making HELOCs effectively 30-year loans. They are often best for shorter borrowing periods.