Home equity is a valuable asset that many homeowners have locked within the walls of their homes. On average, homeowners have around $295,000 in equity that can be put to work through a home equity line of credit (HELOC) or loan. These financial products allow homeowners to access the equity in their homes for various purposes.
According to real estate data analytics company Curinos, the average adjustable rate for a HELOC is 7.20%, while the national average fixed rate for a home equity loan is 7.47%. 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%.
A HELOC offers the flexibility to draw from an approved line of credit as needed, while a home equity loan provides a lump sum upfront. Both options can be beneficial for homeowners looking to leverage their home equity.
The Federal Reserve estimates that homeowners have a total of $34 trillion in equity in their homes. For those hesitant to give up their low mortgage rate, a second mortgage in the form of a HELOC or home equity loan can be a viable solution.
Second mortgage rates are typically based on an index rate plus a margin. HELOCs often use the prime rate as the index, which currently stands at 6.75%. Adding a margin of 0.75% would result in a variable rate starting at 7.50%. On the other hand, home equity loans offer a fixed interest rate.
Lenders have flexibility in pricing second mortgage products, so it’s essential to shop around for the best rates. Factors such as credit score, debt amount, and credit line compared to home value can influence the interest rate offered.
It’s important to note that average national HELOC rates may include introductory rates that last for a limited time before transitioning to an adjustable rate. Home equity loans, with fixed interest rates, typically do not have introductory rates.
When considering a HELOC or home equity loan, it’s crucial to compare fees, repayment terms, and interest rates from different lenders. Rates can vary widely, ranging from around 6% to as high as 18%.
For homeowners with low primary mortgage rates and a significant amount of equity in their homes, now may be an opportune time to consider a HELOC or home equity loan. These financial products allow homeowners to access cash for home improvements, repairs, or other expenses without sacrificing their favorable mortgage rate.
Ultimately, the decision to get a HELOC or home equity loan depends on individual financial goals and circumstances. It’s essential to carefully consider the terms and implications of these borrowing options before making a decision.
