home equity

What changes home equity rates?

The federal funds rate, from which the prime rate is derived, is the target rate set by the Federal Open Market Committee. Since December 2008, the rate has been at a range of zero percent to 0.25 percent.

If the federal funds rate isn't moving but interest rates on various products are, what's driving rate changes? Below, Bankrate shows you what is causing rate changes in mortgages, home equity loans, auto loans, CDs and money market accounts and credit cards.

Home Equity

Rates on home equity lines of credit -- also known as HELOCs -- typically are indexed to the prime rate, a common benchmark for consumer and business loans set by banks.

The prime rate moves in lock step with the federal funds rate. Because the Federal Reserve left rates unchanged again this month, the prime rate will not change.

Right now, the HELOC rate is 5.71 percent. Although rates may edge up or down in coming weeks, significant changes are extremely unlikely until the Fed begins raising rates again.

Then and now
ProductRate on
Dec. 18, 2008
Rate on
Aug. 5, 2009
$30,000 home equity loan8.26%8.2%
$30,000 HELOC5.22%5.71%

Rates on new home equity loans are trickier to forecast, as they do not move in lock step with the federal funds rate. Several factors influence loan rates.

In recent months, rates on HELOCS and loans have remained somewhat elevated. Lenders are charging higher rates to compensate for the risk of a recent trend toward rising borrower defaults on home equity products.

Rates also have risen because fewer lenders now offer home equity products, reducing competition. Finally, banks' reduced access to capital in the wake of the financial crisis also has pushed rates higher.

However, rates on loans have come down off their highs recently and are now at 8.2 percent, the lowest reading since November 2008.

It's anybody's guess as to where rates will go from here.

If you're dealing with other money problems, Bankrate can help. Read the Bankrate feature "How to solve 5 money problems."

Home equity rates since Dec. 16, 2008

You can search home equity rates using Bankrate's search tool.

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