Home equity loans drop while HELOCs rise again
A change in character for home equity rates in the most recent week. The $30,000 home equity line of credit (HELOC), which have been on a downward course this year, rose — albeit by just one basis point — to 8.29 percent, according to Bankrate’s national survey of lenders. Meanwhile, the average $30,000 home equity loan, which had been bobbing up of late, fell four basis points to 8.41 percent.
Even as rates trade off their lows for the year, HELOCs and home equity loans remain popular options, says Fred Bolstad, head of retail lending at U.S. Bank. “We see a lot of people use both of those for debt reduction,” he says. “It can be a great trade-off to pay off credit cards that have higher rates of interest to bring your overall cash flow back in line. With equity in your home, it’s a great way to do it.”
| Current | 4 weeks ago | One year ago | 52-week average | 52-week low | |
|---|---|---|---|---|---|
| HELOC | 8.29% | 8.28% | 9.09% | 8.95% | 8.26% |
| 10-year home equity loan | 8.55% | 8.54% | 9.03% | 8.66% | 8.46% |
| 15-year home equity loan | 8.50% | 8.49% | 8.87% | 8.62% | 8.37% |
| 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 still down substantially from the highs of this time last year. Greg McBride, chief financial analyst at Bankrate, forecasts that rates will continue to decline in 2025, especially those of HELOCs. They will average 7.25 percent, he thinks — which would be their lowest level in three years.
The demand for HELOCs and HELoans 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, and indicated cuts would continue this year. (It did put the breaks on at its January meeting, though, 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.”
The number of mortgaged residential properties with negative equity grew to 990,000 in the third quarter of 2024; though up, it’s still less than 2% of mortgaged homes.
Total homeowner equity as of the third quarter of 2024 was almost $35 trillion, slightly off a record high reached the previous quarter.
In the fourth quarter of 2024, almost half of the mortgaged residential properties in the U.S. were considered equity-rich, with secured loan balances of no more than half of their estimated market values.
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.
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
| Average rate | |
|---|---|
| HELOC | 8.29% |
| Home equity loan | 8.41% |
| Credit card | 20.10% |
| Personal loan | 12.38% |
|
Source: Bankrate national survey of lenders, Feb. 12 | |
The Fed’s monetary policy influences interest rate trends overall and the rates lenders advertise. Of course, the individualized offer you receive on a particular HELOC or new home equity loan reflects an additional factor: your creditworthiness — specifically your credit score and debt-to-income ratio. Then there’s the value of your home and your ownership stake, especially vis-à-vis the amount you want to borrow. Lenders generally allow your home-based loans (including your mortgage) to be 80 or 85 percent of your home’s worth.
Some people may be more conservative in tapping their equity, since what’s paramount is “paying off the loan as fast as they can,” says Bolstad. “For other people, it’s all about [increasing] cash flow, and so they want to leverage their home to the fullest.”
