Current home equity interest rates

What are current home equity interest rates?

Home equity interest rates vary widely by lender and the type of product. Generally speaking, home equity lines of credit (HELOCs) have lower starting interest rates than home equity loans, although the rates are variable. Home equity loans have fixed interest rates, which means the rate you receive will be the rate you pay for the entirety of the loan term.

As of September 20, 2023, the current average home equity loan interest rate is 8.62 percent. The current average HELOC interest rate is 9.10 percent.

To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The rates shown above are calculated using a loan or line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

Note: The above APRs are current as of September 20, 2023. The exact APR you might qualify for depends on your credit score and other factors, such as whether you're an existing customer or enroll in auto-payments.

The Fed and its impact on home equity rates

The Federal Reserve, the central bank of the U.S., doesn’t directly set home equity loan interest rates (or any consumer loan rates, for that matter). But it does set the federal funds rate, which acts as a benchmark for banks and other lenders: They use it to determine how much you pay for various financial products, including fixed-interest home equity loans and variable-rate HELOCs. 

To combat inflation, the Fed has raised the federal funds rate 11 times from early 2022 through mid-2023, driving a sharp rise in home equity products’ rates too — especially HELOCs, which doubled from 4.2 percent in January 2022 to 8.65 percent in July 2023. At its last two meetings, the central bank has kept rates unchanged, and those of home equity products have stayed relatively flat as well. But they remain elevated, a reflection of fears that the Fed could resume its hikes if inflation doesn’t subside.  

Average home equity loan rates by market

Your potential home equity loan rate depends in part on where your home is located. As of September 20, 2023, the current average home equity loan interest rate in the five of the largest U.S. markets is 8.62 percent.

To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The rates shown above are calculated using a loan or line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

Average HELOC rates by market

Your potential HELOC rate also depends on where your home is located. As of September 20, 2023, the current average HELOC interest rate in the 10 largest U.S. markets is 9.10 percent.

To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The rates shown above are calculated using a loan or line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

What is home equity?

Home equity is the difference between the balance owed on your mortgage and your home’s current market value. Simply put, it’s the share of your house that you own because you’ve paid down your mortgage balance and/or your property’s value has increased over time.

As you pay down your loan balance, the equity in your home grows. Even though your home belongs to you, your lender secures the loan against the property until you’ve repaid in full.

A home equity loan allows a homeowner to borrow against the equity in their home and take the cash in a lump sum. The loan is often used to make major home improvements or to consolidate credit card debt. A home equity loan, unlike a home equity line of credit (HELOC), has a fixed interest rate, so the borrower's monthly payments stay the same during the term, which can be up to 30 years.

The lender determines the interest rate for a home equity loan based on several factors, such as:

• The amount of the loan
• The borrower's credit score, credit history, debt-to-income (DTI) ratio and income
• Loan-to-value (LTV) ratio, or how much the borrower owes on the home compared to the home's value

The rates featured here allow you to compare home equity lenders and see national averages so that you can make the best, most informed decision. When you shop for a home equity loan, find out the annual percentage rate (APR). This reflects the interest rate, plus any points, fees or other charges you have to pay for the loan. That's why the APR is always higher than the interest rate.

Why is home equity important?

Homeownership — and home equity — has long been an avenue to build wealth. As you reduce your mortgage debt and your home gains value over time, the property becomes an asset. Other major purchases don’t tend to appreciate the way a home does over time. Vehicles, for example, lose value the minute you drive them off the lot and continue depreciating rather than increasing in value.

Home equity and the personal wealth it can build isn’t meant to be treated like a cash jar. Buying a home provides a basic need, but it’s also a long-term investment for most people. Your home equity can be a resource when you need to use it, but it should be used with careful consideration and planning.

Types of home equity debt

Home equity loan

A home equity loan is a second mortgage that allows you to use your home’s value as collateral to pull out cash in a lump sum. You can use the money to finance home renovations, consolidate credit card debt or pay for other large expenses. Once you’ve received your loan, you start repaying it right away at a fixed interest rate. That means you’ll pay a set amount every month for the term of the loan, which can be up to 30 years.

Home equity line of credit (HELOC)

A home equity line of credit, or HELOC, works more like a credit card that allows you to withdraw on a revolving credit line during an initial “draw” period. You’ll be able to pull money anytime you need it during this timeframe, usually 10 years. As you pay down the HELOC principal, the credit revolves, and you can use it again. You can choose one of two draw period options: interest-only payments or a combination of interest and principal payments. The latter helps you repay the loan faster.

Most HELOCs come with variable rates, meaning your monthly payment can go up or down over the loan’s lifetime. Some lenders now offer fixed-rate HELOCs, but these tend to have higher interest rates. After the draw period, you enter the repayment period, in which any remaining interest and the principal balance are due. Repayment periods tend to be longer than draw periods — anywhere from 15 to 20 years.

What are the best ways to use home equity?

It can be a good idea to use your home equity for major life expenses that enhance your overall financial well-being. Some popular uses for home equity loans include:

1. 1. Making substantial home improvements
   2. Consolidating higher-interest debt, such as credit cards
   3. Buying a vacation home or investment property
   4. Paying for college tuition or expenses for yourself or a child
   5. Starting a business
   6. Emergency expenses
   7. Paying for a wedding

A home equity loan makes more sense for a large, set expense because it’s paid out in a lump sum. If you have smaller expenses that will be spread out over several years, such as ongoing home renovation projects or college tuition payments, a HELOC might be a better option.

Keep in mind that just because you can use your equity doesn’t mean you should. Leveraging your home to pay for a wedding, for example, might put your finances and home at risk down the line.

What is a good home equity loan rate? What is a good HELOC rate?

A good rate on any type of loan is generally considered to be a rate lower than the national average. The rates that lenders display on their websites are typically the best rate they offer, and they often reserve them for borrowers with higher credit scores and a lower loan-to-value (LTV) ratio. For home equity products, some lenders also reserve their best rates for borrowers willing to set up automatic payments or withdrawals.

How soon can I tap the equity I've built?

Generally, lenders require that homeowners have at least 20 percent equity before they can obtain a home equity loan product. In other words, this means you need an LTV ratio of 80 percent. Take your outstanding mortgage balance and divide it by your home’s appraised value to get a percentage for your LTV ratio.

Home values and the term of your loan play a role in how quickly you gain (or lose) equity. When home values rise, as they have in recent years, you can build equity much faster. If the market takes a dive, as it did during the Great Recession, you could lose equity and become “underwater” on your mortgage — owing more than your home is worth.