With average rates for home equity lines of credit (HELOC) and home equity loans (HEL) dropping closer to 7%, homeowners are faced with the decision of which option to choose. Both HELOCs and HELs have their own benefits, but one thing is certain – rates on home equity products haven’t been this low in years.
According to real estate data analytics company Curinos, the average HELOC rate is currently 7.25%, while the national average rate on 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%.
A HELOC allows you to draw from your approved line of credit as needed, while a home equity loan provides you with a lump sum. With mortgage rates remaining stagnant, homeowners with home equity and a favorable primary mortgage rate may be frustrated by their inability to access the growing value in their homes.
The Federal Reserve estimates that homeowners have $34 trillion of equity locked within their homes. For those unwilling to give up their low home loan rate, a second mortgage in the form of a HELOC or HEL can be a viable solution. HELOC interest rates are different from primary mortgage rates, as they are based on an index rate plus a margin. On the other hand, a home equity loan may have a different margin because it is a fixed-interest product.
Lenders have flexibility in pricing second mortgage products like HELOCs or home equity loans, so it is important to shop around for the best rate. Your rate will depend on factors such as your credit score, the amount of debt you carry, and the amount of your credit line compared to the value of your home.
It is important to note that average national HELOC rates may include introductory rates that only last for a limited time, after which the interest rate will become adjustable. In contrast, a home equity loan typically has a fixed rate and does not come with an introductory “teaser” rate.
When considering a HELOC, look for lenders that offer low fees, a fixed-rate option, and generous credit lines. Today, FourLeaf Credit Union is offering a HELOC rate of 5.99% for 12 months on lines up to $500,000. On the other hand, the best home equity loan lenders offer fixed rates for the duration of the repayment period, providing simplicity and consistency in payments.
Rates for HELOCs and home equity loans can vary significantly from one lender to the next, with rates ranging from nearly 6% to as high as 18%. It’s important to compare rates from different lenders and use the national average rates as benchmarks.
In conclusion, for homeowners with low primary mortgage rates and a substantial amount of equity in their homes, now may be one of the best times to consider a HELOC or home equity loan. By leveraging the equity in your home, you can fund home improvements, repairs, upgrades, or other expenses without giving up your favorable mortgage rate. Consider your financial goals, repayment abilities, and long-term plans before deciding between a HELOC or a home equity loan.
