Home equity rates rise, as Fed policymakers hold interest rates steady 

Home equity rates climbed to their highest level this year, as the Federal Reserve left interest rates unchanged for the fourth meeting in a row. The $30,000 home equity line of credit rose two basis points to 7.47%, according to Bankrate’s national survey of lenders. Meanwhile, the five-year $30,000 home equity loan gained three basis points to 8.13%.

Higher home equity rates may have you debating whether a HELOC, home equity loan or other options like credit cards or personal loans can meet your borrowing needs. Erik Schmitt, leader of JPMorgan Chase’s home lending, consumer direct and digital sales strategy, has this advice on how homeowners can make a decision. 

“I would advise them first and foremost to pick the option that meets their need for cash but also the cost of that product,” he says. “You can use APR comparisons on a personal loan versus a personal credit card versus the HELOC and choose the option that’s most cost-effective for that borrower.” 

Note: The home equity rates in this survey assume a line or loan amount of $30,000.

What’s driving home equity rates today?

Home equity rates are being driven primarily by two factors — Federal Reserve policy and long-term inflation expectations.

At its latest policy meeting in June, the central bank held the line on interest rates for the fourth consecutive meeting. What was unexpected was that nearly half of the Fed officials said they would support a rate hike if inflation persists. In a statement after the decision, the Fed said inflation still remains elevated relative to its 2% goal. 

What also surprised markets was that, in the statement, the Fed dropped language that might have offered clues about the future direction of interest rates.

Current home equity rates vs. rates on other types of credit

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.

Source: Bankrate national survey of lenders, June 17

While average rates are useful to know, the individual offer you receive on a HELOC or new home equity loan also reflects additional factors, such as 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.

Keep in mind: Even if you’re able to secure a favorable rate from a lender, home equity products are still relatively high-cost debt.

Unlock your home’s value

A fixed-rate home equity loan offers a lump-sum payout and a predictable repayment schedule.

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