What you need to know about current home equity loan rates
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When shopping for a home equity loan, look for a competitive interest rate, repayment terms that meet your needs and minimal fees.
What are current home equity interest rates?
Home equity interest rates vary widely by lender and the type of product. Generally speaking, HELOCs have lower starting interest rates than home equity loans, although the rates are variable. Home equity loans have fixed interest rates, which means that the rate you receive will be the rate you pay for the entirety of the loan term. As of Dec. 15, 2021, the current average home equity loan interest rate is 5.96 percent. The current average HELOC interest rate on Dec. 15, 2021, is 4.27 percent.
| Home equity loan |
5.96%
|
3.25% - 7.94%
|
| 10-year fixed home equity loan |
6.02%
|
3.50% - 7.94%
|
| 15-year fixed home equity loan |
6.08%
|
3.75% - 8.04%
|
| HELOC |
4.27%
|
1.99% - 7.24%
|
Because home equity rates are often variable-rate products, your rate will rise and fall due to market conditions. The initial rate you receive is determined by your credit score, income, desired line amount and more. 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 home equity loan rates by market
One of the biggest factors that influences your home equity loan rate is where you live. Of the largest U.S. markets, Boston has one of the lowest average home equity loan rates and the D.C. metro area has one of the highest. As of Aug. 2, 2021, the current average home equity loan interest rate in the 10 largest U.S. markets is 5.20 percent.
| Boston |
4.04%
|
3.50% - 4.50%
|
| Chicago |
5.22%
|
3.00% - 6.19%
|
| DC Metro |
6.76%
|
5.50% - 9.25%
|
| Detroit |
5.22%
|
4.13% - 6.45%
|
| Houston |
5.99%
|
5.99% - 5.99%
|
| New York Metro |
4.50%
|
4.50% - 4.50%
|
| Philadelphia |
4.93%
|
3.50% - 5.39%
|
| Market Total |
5.20%
|
3.00% - 9.25%
|
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. Some of the lowest HELOC rates in the largest U.S. markets are in the New York metro area, the D.C. metro area, Boston and San Francisco, while some of the highest are in Chicago, Houston and Los Angeles. As of Aug. 2, 2021, the current average HELOC interest rate in the 10 largest U.S. markets is 4.75 percent.
| Boston |
4.52%
|
2.99% - 5.79%
|
| Chicago |
5.42%
|
4.50% - 6.34%
|
| Dallas |
5.32%
|
5.25% - 5.38%
|
| DC Metro |
3.42%
|
1.99% - 7.08%
|
| Detroit |
4.64%
|
3.25% - 7.22%
|
| Houston |
5.90%
|
5.38% - 6.13%
|
| Los Angeles |
7.24%
|
7.24% - 7.24%
|
| New York Metro |
3.77%
|
2.24% - 6.85%
|
| Philadelphia |
4.77%
|
1.99% - 6.80%
|
| San Francisco |
4.50%
|
2.24% - 6.75%
|
| Market Total |
4.75%
|
1.99% - 7.24%
|
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 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). It reflects the interest rate, plus any points, fees or other charges you have to pay for the loan. That's why the APR is usually 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, your home gains value over time and 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 meant to be 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 lets you 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, upfront 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 lets you 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’s typically a good idea to use your home equity for major life expenses that enhance your overall financial picture. Some popular uses for home equity loans include:
- Making substantial home improvements.
- Consolidating higher-interest debt, such as credit cards.
- Buying a vacation home or investment property.
- Paying for college tuition or expenses for yourself or a child.
- Starting a business.
A home equity loan makes more sense for a large, upfront expense (like redoing a kitchen or consolidating debt) 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.
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, often given to borrowers with high credit scores and a low loan-to-value ratio.
However, a "good" home equity rate may not be the same for everyone. If you have an average or below-average credit score, the lowest rate you're offered may be above the national average. That's why it's important to shop around with multiple lenders; that way you can determine which lender offers you the best rate for your financial profile.
How soon can I tap the equity I’ve built?
Generally, lenders require that homeowners have at least 20 percent equity in their homes before they can withdraw money through a home equity loan product. This means you need a loan-to-value ratio, or LTV, of 80 percent. A professional property appraisal is done to verify your home’s current market value. A lender then divides your outstanding mortgage balance by the 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. But if the market takes a dive as it did during the Great Recession, you could lose equity and become “underwater” in your mortgage – owing more than your home is worth.
