Rates for home equity lines of credit and home equity loans currently range from the low 7% range to near 9%, with national averages staying close to 7.5% or lower. These second mortgage interest rates continue to represent one of the most affordable methods for borrowing cash.
According to data from real estate analytics firm Curinos, the average monthly HELOC rate has declined to 7.25%. The national average rate for a home equity loan is reported at 7.56%.
Both rates apply to applicants who have a minimum credit score of 780 and a maximum combined loan-to-value ratio of less than 70%.
The Federal Reserve estimates that homeowners collectively hold approximately $36 trillion in equity within their properties. A second mortgage enables U.S. homeowners to access this accumulated equity, which has reached record levels.
With primary mortgage rates still hovering near 6%, homeowners who possess substantial home equity and benefit from favorable primary mortgage rates significantly below current levels may experience frustration over their inability to tap into the increasing value of their homes.
For those reluctant to surrender their low home loan rates, obtaining a second mortgage through either a HELOC or a home equity loan presents an attractive alternative.
Home equity interest rates differ from primary mortgage rates. Second mortgage rates are typically calculated by adding a margin to an index rate, often the prime rate, which currently stands at 6.75%. If a lender applies a margin of 0.75%, the resulting HELOC would start with a variable rate of 7.50%.
A home equity loan may feature a different margin since it is a fixed-interest product.
Lenders maintain flexibility in pricing second mortgage products like HELOCs and home equity loans, making it advantageous for borrowers to compare offers. The final rate offered depends on factors including the applicant's credit score, existing debt load, and the amount of credit drawn relative to the home's value.
HELOC rates can include below-market "introductory" rates that may only apply for six months or one year. After this period, the interest rate typically becomes adjustable, often starting at a significantly higher level. In contrast, home equity loans, with their fixed rates, generally do not feature such introductory "teaser" rates.
The best HELOC lenders are characterized by low fees, fixed-rate options, and generous credit lines. A HELOC permits homeowners to utilize their home equity flexibly, in any amount up to the credit limit, allowing repeated withdrawals and repayments.
Prospective borrowers should also consider lenders offering below-market introductory rates. For instance, FourLeaf Credit Union is currently promoting a HELOC APR of 5.99% for 12 months on credit lines up to $500,000. This introductory rate will later convert to a variable rate, so shoppers are advised to be mindful of both rates.
Attention should also be paid to the minimum draw amount required by a HELOC, which is the initial sum a lender mandates the borrower to take from their equity.
Identifying the best home equity loan lenders might be simpler, as the fixed rate obtained remains constant throughout the repayment term, meaning borrowers need only focus on a single rate. Since the loan provides a lump sum, there are no minimum draw amounts to consider.
As always, it is recommended to compare any annual fees, additional charges, and the detailed terms of repayment.
Rates can vary considerably between lenders, ranging from nearly 6% to as high as 18%, largely dependent on the borrower's creditworthiness and shopping diligence. The national averages of 7.25% for HELOCs and 7.56% for home equity loans can serve as useful benchmarks when evaluating offers from second mortgage lenders.
For homeowners with low primary mortgage rates and significant home equity, considering a HELOC or home equity loan now is likely a prudent move. This approach allows them to retain their advantageous mortgage rate while using the accessed cash for purposes such as home improvements, repairs, or upgrades. Funds from a second mortgage can also be used for discretionary expenses like vacations, provided the borrower maintains the discipline to repay promptly, though such expenditures may not justify incurring long-term debt.
If a homeowner withdraws a full $50,000 from a home equity line of credit at a 7.50% interest rate, the monthly payment during the 10-year draw period would be approximately $313. However, it is important to note that the rate is usually variable and subject to periodic changes, with payments increasing during the subsequent 20-year repayment period, effectively making a HELOC a 30-year loan. Both HELOCs and home equity loans are most beneficial when the borrowed amount is repaid over a considerably shorter timeframe.