HELOCs and home equity loans record slight gains

HELOCs and home equity loans became (slightly) less affordable in the most recent week. The $30,000 home equity line of credit (HELOC) climbed two basis points to 8.28 percent, according to Bankrate’s national survey of lenders. Meanwhile, the average $30,000 home equity loan climbed one basis point to 8.45 percent. While the needle hasn’t moved much, the numbers offer something of a reality check for would-be borrowers.

“While homeowners have more equity than ever and lenders have credit available, home equity lines of credit are no longer the low-cost source of borrowing that they were for the better part of 20 years, from 2002-2022,” says Greg McBride, chief financial analyst at Bankrate. “The average rate is over eight percent and many lenders are charging double-digit interest rates. So don’t tap home equity frivolously and have a game plan for paying it back.”

What’s driving home equity rates today?

Home equity rates are still down substantially from the highs of this time last year, with HELOCs near a two-year low. McBride forecasts that HELOC rates will continue to decline in 2025, averaging 7.25 percent, their lowest level in three years.

Omar Jordan, founder and CEO at Coviance, a platform that streamlines compliance processes in HELOC and home equity lending, agrees. “The housing shortage and President Trump’s promises to deregulate and provide financial relief to Americans will impact HELOC rates later this year. Even more so in 2026, when Trump promotes someone into the Fed Chair seat when the current term is due to expire.”

The demand for HELOCs is being driven by two factors: lender competition — as banks and mortgage companies try to attract applicants with low-for-a-limited-time loan terms — and the Federal Reserve’s actions. The central bank cut interest rates three times in late 2024, but put the breaks on at its January meeting, moving cautiously as it keeps an eye on inflation.

“I expect the economy is still going to continue to grow at a slower, but still solid pace,” McBride says. “An environment where the economy is in good shape and homeowners have a pile of equity to draw from is also conducive to more marketing efforts and things like introductory rates. The forecast of where the HELOC rate is going to be at the end of the year encompasses not just the effects of what I expect to be three rate cuts from the Fed, but also one where we’re seeing more introductory offers and lower rates.”

What influences home equity rates?

Several factors can influence interest rates on HELOCs and new home equity loans. That includes the prime rate, which is tied to Federal Reserve monetary policy. When the Fed raises rates, borrowing costs on equity-based loans tend to go up. The opposite tends to happen when it lowers rates.

The individualized offer you receive on a particular HELOC or new home equity loan reflects an additional factor: your creditworthiness, specifically your credit score, debt-to-income ratio and the value of the home.

To be sure, the Fed’s moves influence interest rates on a variety of credit products. However, because HELOCs and home equity loans are linked to your home as collateral, those 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.

Home equity rates vs. rates on other types of credit

The Fed’s monetary policy influences interest rate trends overall and the rates lenders advertise. The individualized offer you receive on a particular HELOC or new home equity loan reflects an additional factor: your creditworthiness, specifically your credit score, debt-to-income ratio and the value of the home.

• Methodology

  The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison.