The current national average rates for home equity lines of credit (HELOC) and home equity loans (HEL) are on a downward trend, making them more affordable options for homeowners looking to access the equity in their homes. According to Curinos data, the average HELOC rate is now 7.25%, down 19 basis points from last month, while the national average rate for a home equity loan is 7.56%, three basis points lower than the previous month.
These rates are based on applicants with a minimum credit score of 780 and a maximum combined loan-to-value ratio (CLTV) of less than 70%. Choosing between a HELOC and a HEL is relatively straightforward – a HELOC allows you to draw from your approved line of credit as needed, while a home equity loan provides a lump sum amount.
With mortgage rates remaining stable, homeowners with equity in their homes may find it frustrating that they cannot access that growing value. However, a second mortgage in the form of a HELOC or HEL can provide a solution for those unwilling to give up their low primary mortgage rate.
The Federal Reserve estimates that homeowners have a whopping $36 trillion of equity locked in their homes, making a second mortgage a valuable tool to tap into this wealth. HELOC interest rates are typically based on an index rate plus a margin, with the prime rate currently at 6.75%. On the other hand, a home equity loan has a fixed interest rate.
Lenders have flexibility in pricing for second mortgage products, so it’s essential to shop around for the best rates based on your credit score, debt level, and credit line compared to your home’s value. While average national HELOC rates may include introductory rates that last for a limited time, home equity loans typically do not have teaser rates.
The best HELOC lenders offer low fees, a fixed-rate option, and generous credit lines, allowing homeowners to access their equity as needed. For example, FourLeaf Credit Union is currently offering a HELOC rate of 5.99% for 12 months on lines up to $500,000. When considering a home equity loan, borrowers can benefit from a fixed rate that lasts the length of the repayment period, simplifying the borrowing process.
Overall, it may be a good time for homeowners with low primary mortgage rates and substantial equity in their homes to consider a HELOC or home equity loan. These options provide access to cash for home improvements, repairs, and upgrades, while allowing borrowers to maintain their favorable mortgage rate. However, it’s essential to carefully consider the terms and repayment structure before committing to a second mortgage.
