The typical rate for a home equity line of credit (HELOC) stands at 7.75%, as reported by analytics firm Curinos. Interest rates on home equity lines of credit have seen a reduction of 31 basis points since January, marking the lowest rate recorded this year.
As per the data from Curinos, the average weekly HELOC rate sits at 7.75%. The highest recorded HELOC rate this year was in January, and it has since declined by 31 basis points. This figure is applicable to applicants with a minimum credit score of 780 and a maximum combined loan-to-value ratio (CLTV) of 70%.
As of late 2024, homeowners have approximately $34 trillion in equity within their homes, according to figures from the Federal Reserve, making it the third-highest level of home equity on record.
With mortgage rates remaining above 6%, homeowners are likely to retain their current low-rate primary mortgages, making selling their homes less appealing. After all, why give up a mortgage with rates at 5%, 4%, or even 3%?
Using a HELOC to tap into the equity accumulated over the years can be a viable solution.
HELOC rates differ significantly from those of primary mortgages. Second mortgage rates typically depend on an index rate plus a margin. This index is usually the prime rate, which is currently at 7.25%. If a lender were to add a margin of 1%, the HELOC would then yield a rate of 8.25%.
Lenders possess a degree of flexibility when pricing second mortgage products, such as a HELOC or home equity loan, which means it is beneficial to shop around. The rate you receive will depend on factors like your credit score, existing debt, and the proportion of your credit line in relation to your home’s value.
Note that average national HELOC rates may also encompass promotional “introductory” rates that are valid for only six months to a year. After this period, your rate is subject to adjustment, likely commencing at a significantly higher rate.
Accessing your home equity through a second mortgage, like a HELOC, does not require surrendering your favorable primary mortgage. You can maintain your mortgage and leverage a HELOC for additional financial flexibility.
The top HELOC lenders provide competitive fees, options for fixed rates, and substantial credit lines. A HELOC grants you the flexibility to access your home equity as needed and in varying amounts, up to your established credit limit. Withdraw funds, repay them, and repeat at your convenience.
While doing so, you’re steadily reducing your low-interest primary mortgage and enhancing your financial future.
Currently, FourLeaf Credit Union is promoting a HELOC APR of 5.99% for a period of 12 months on lines up to $500,000. This is an introductory rate that will convert to a variable rate afterward. When evaluating lenders, it’s crucial to consider both types of rates and compare fees, repayment conditions, and minimum withdrawal amounts. The minimum draw represents the amount you must initially draw from your credit line.
The flexibility of a HELOC allows you to utilize only what you need, while retaining accessible credit for future purposes. Interest accrues only on the amounts you actually borrow.
Rates can vary tremendously between lenders, making it challenging to pinpoint an exact figure. You may encounter rates anywhere between 6% and 18%, which largely hinges on your creditworthiness and your commitment to shopping wisely.
For those with low initial mortgage rates and significant home equity, this could be one of the best opportunities to obtain a HELOC. You maintain your advantageous mortgage rate while having access to cash from your equity for projects, repairs, or even leisure activities, like a vacation—provided you can manage repayment responsibly. Consider whether the vacation is truly worth accruing long-term debt.
If you were to withdraw the entire $50,000 from a HELOC at an interest rate of 7.75%, your monthly payment during the 10-year draw period would be roughly $323. While this may seem attractive, keep in mind that the interest rate is generally variable, meaning it can fluctuate, and your payments may rise during the 20-year repayment phase. Essentially, a HELOC transforms into a 30-year loan. The ideal scenario for HELOCs is to borrow and repay the outstanding balance over the shorter term.
