Interest rates on home equity lines of credit (HELOCs) and home equity loans are currently averaging in the low to mid 7% range. If you’re a homeowner looking to access some of your home equity without having to sell or refinance your low primary mortgage rate, a second mortgage could be the solution you’ve been searching for.
According to real estate analytics firm Curinos, the average HELOC rate is 7.25%, while the national average rate for a home equity loan is 7.56%. 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%.
With primary home mortgage rates remaining stable, homeowners who have built up equity in their homes may be frustrated at not being able to access that value. For those unwilling to give up their low home loan rate, a home equity line of credit or home equity loan can provide a viable solution.
The Federal Reserve estimates that homeowners in the U.S. have a staggering $34 trillion dollars of equity locked within their homes. A second mortgage, such as a HELOC or HEL, allows homeowners to tap into this substantial equity.
Home equity interest rates differ from primary mortgage rates, as second mortgage rates are typically based on an index rate plus a margin. The prime rate, which has recently fallen to 6.75%, is often used as the index. For example, if a lender adds a margin of 0.75%, the HELOC rate would be 7.50%.
Lenders have some flexibility in pricing second mortgage products, meaning it’s essential to shop around. Your rate will depend on factors such as your credit score, existing debt, and the amount of your credit line compared to your home’s value.
It’s worth noting that average national HELOC rates may include “introductory” rates that only last for a limited time. After this period, the interest rate will likely become adjustable, potentially beginning at a higher rate.
On the other hand, HELs typically do not have introductory rates, offering a fixed rate that remains unchanged throughout the agreement’s term.
If you’re considering accessing your home equity without giving up your low-rate mortgage, a HELOC can be a suitable option. The best HELOC lenders offer low fees, fixed-rate options, and generous credit lines, allowing you to use your equity as needed.
While a HELOC may come with variable interest rates, offering flexibility in borrowing and repaying, a home equity loan provides a lump sum with a fixed rate for the repayment period.
It’s essential to compare fees and repayment terms when choosing between a HELOC and a home equity loan. Rates for these products can vary widely, ranging from below 6% to as high as 18%, depending on your creditworthiness and diligence as a shopper.
For homeowners with low primary mortgage rates and significant equity in their homes, now could be an opportune time to consider a HELOC or home equity loan. By accessing your equity, you can fund home improvements, repairs, or upgrades without sacrificing your favorable mortgage rate.
If you opt for a HELOC and withdraw the full credit line amount, your monthly payments during the draw period could be manageable. However, keep in mind that the rate is typically variable, and payments will increase during the repayment period. HELOCs are most beneficial when borrowing and repaying the balance within a shorter timeframe.
In conclusion, by leveraging a HELOC or home equity loan, homeowners can access their home’s equity without compromising their low primary mortgage rate. With careful consideration of rates, terms, and repayment strategies, tapping into home equity can be a strategic financial move for many homeowners.
