Home equity borrowing costs have dropped to levels not seen in about three years. The $30,000 home equity line of credit fell 13 basis points to 7.31%, according to Bankrate’s national survey of lenders. Meanwhile, the five-year $30,000 home equity loan edged down two basis points to 7.90%.
In this favorable rate environment, how do you decide if a HELOC or a home equity loan is the best option for you? Brett Schiffer, chief credit officer at CrossCountry Mortgage, says borrowers should ask themselves these important questions:
“Once those questions are answered, talk to a loan officer,” Schiffer says. “Share your goals and current financial situation and work together on a plan that fits your unique situation.”
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|
Current |
4 weeks ago |
One year ago |
52-week average |
52-week low |
|
7.31% |
8.22% |
8.28% |
8.00% |
7.31% |
|
|
5-year home equity loan |
7.90% |
7.97% |
8.45% |
8.20% |
7.90% |
|
10-year home equity loan |
8.08% |
8.16% |
8.57% |
8.36% |
8.08% |
|
15-year home equity loan |
8.07% |
8.10% |
8.52% |
8.29% |
8.07% |
|
Note: The home equity rates in this survey assume a line or loan amount of $30,000. |
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Home equity rates are driven primarily by two factors — Federal Reserve policy and long-term inflation expectations. The Fed left interest rates unchanged at its January meeting, as it continues to monitor inflation and the job market. Looking ahead to the rest of the year, Bankrate’s senior industry analyst Ted Rossman forecasts the Fed will deliver three quarter-point cuts in 2026.
“Inflation continues to moderate, albeit slowly, and the job market appears to be stabilizing after a run-up in the unemployment rate,” he says. “Risks appear fairly balanced at the moment, and the Fed will likely take some time to determine its next move. We’re soon to get a new Fed Chairman, as well.”
Learn more: How the Federal Reserve affects HELOCs and home equity loans
Because HELOCs and home equity loans use your home as collateral, their rates tend to be much less expensive — more akin to current mortgage rates — than the interest charged on credit cards or personal loans, which aren’t secured.
|
Credit type |
Average rate |
|
HELOC |
7.31% |
|
Home equity loan |
7.90% |
|
19.61% |
|
|
12.27% |
|
|
Source: Bankrate national survey of lenders, Feb. 4 |
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While average rates are useful to know, the individual offer you receive on a particular HELOC or new home equity loan reflects additional factors, like your creditworthiness and financials. Then there’s the value of your home and the size of your ownership stake. Lenders generally limit all your home loans (including your mortgage) to a maximum of 80% to 85% of your home’s worth.
