With falling interest rates, homeowners are becoming more interested in utilizing Home Equity Lines of Credit (HELOCs) and home equity loans. According to Cotality chief economist Dr. Selma Hepp, declining borrowing rates could make tapping into home equity more affordable in the future.
The average HELOC rate is currently 7.20%, which is down three basis points from last month, as reported by real estate analytics firm Curinos. On the other hand, the national average rate for a home equity loan is 7.47%, which is up three 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 less than 70%.
For homeowners with low primary mortgage rates, accessing their growing home equity can be frustrating. A HELOC or home equity loan can provide a solution by offering a second mortgage option. Home equity interest rates are calculated differently than primary mortgage rates, typically based on an index rate plus a margin. The prime rate, currently at 6.75%, is commonly used as the index rate.
Each lender has its own pricing methodology for second mortgage products, so it’s essential to shop around. Factors such as credit score, debt amount, and credit line compared to the home value will influence the interest rate offered. It’s important to note that national average HELOC rates may include introductory rates that could increase after a certain period.
The best HELOC lenders offer low fees, fixed-rate options, and generous credit lines. Some lenders, like FourLeaf Credit Union, are currently offering introductory rates as low as 5.99% for the first 12 months on lines up to $500,000. When comparing lenders, pay attention to both the introductory and variable rates, as well as any minimum draw amounts.
Home equity loan lenders may be easier to find, as the fixed rate remains constant throughout the repayment period. This means there’s only one rate to focus on, and no draw minimums to consider. When comparing lenders, be sure to look at fees and repayment terms.
Rates for HELOCs and home equity loans can vary significantly between lenders and locations, ranging from 6% to 18%. Homeowners with low primary mortgage rates and substantial home equity may find this to be an opportune time to consider a HELOC or home equity loan for various purposes, such as home improvements or repairs.
It’s important to understand the terms of a HELOC, as the interest rate is typically variable and payments may increase over time. HELOCs are best suited for borrowers who can repay the balance within a shorter period. Overall, with careful consideration and comparison, homeowners can make informed decisions about utilizing their home equity for financial needs.
