Rates for home equity lines of credit and home equity loans are currently at near multi-year lows. With the next Federal Reserve meeting still a month away, and further interest rate cuts not expected soon, second mortgage rates are anticipated to remain relatively stable.
According to data analytics company Curinos, today’s national average monthly HELOC rate is 7.23%, which is only two basis points lower than it was one month ago. The average rate on a home equity loan is 7.44%, a decrease of 12 basis points from 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 70%.
It’s important to note that home equity interest rates are tied to a different benchmark than primary mortgage rates. While first-lien mortgage rates are influenced by the 10-year Treasury, second mortgage rates are based on the prime rate plus a margin. The current prime rate is 6.75%, so if a lender adds a 0.75% margin, the HELOC rate would be 7.50%. On the other hand, a home equity loan may have a different margin as it is a fixed-interest product.
Lenders have some flexibility in pricing second mortgage products like HELOCs or home equity loans, so it’s wise to shop around for the best rates. Your specific rate will depend on factors such as your credit score, existing debt, and the amount of your credit line relative to your home’s value.
Average national HELOC rates may include introductory rates that last for a limited time, typically six months to one year. After the introductory period, the interest rate will typically become variable, likely starting at a higher rate. In contrast, home equity loans typically do not come with introductory teaser rates due to their fixed-rate nature.
When looking for the best HELOC lenders, consider factors such as low fees, fixed-rate options, and generous credit lines. HELOCs offer the flexibility to use your home equity as needed, up to your credit line limit, allowing you to borrow, repay, and borrow again.
For instance, FourLeaf Credit Union is currently offering a HELOC rate of 5.99% for 12 months on lines up to $500,000, which will convert to a variable rate of 7.25% after the introductory period. When comparing lenders, be sure to consider both the introductory rate and the subsequent variable rate.
The best home equity loan lenders may be easier to identify, as the fixed rate you secure will remain consistent throughout the repayment period. This means you only need to focus on one rate, and there are no draw minimums to consider as you receive a lump sum upfront.
As always, it’s essential to compare fees and carefully review the repayment terms before committing to a HELOC or home equity loan. Rates can vary significantly between lenders, so it’s recommended to use the current national averages as a baseline when comparing rates from different providers.
Overall, now may be a favorable time to consider a HELOC or home equity loan. By leveraging your home equity, you can fund projects like home improvements, repairs, or upgrades while maintaining your existing primary mortgage rate. Just keep in mind that with a HELOC, the rate is typically variable, so your payments may fluctuate over time, turning it into a long-term loan option.
