Home Equity Loan and HELOC Rates Are Barely Moving, Despite a Big Drop for Mortgage Rates. Here’s Why

A photo to accompany a story about home equity loan and HELOC rates this week STEFANI REYNOLDS/AFP via Getty Images
People shop for lumber at a Home Depot store in Alhambra, California on May 4, 2022.
We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

Home equity loan and HELOC rates had another ho-hum week of small rate changes, with averages up just a little bit at the start of July.

That comes in contrast to the big swings seen in interest rates for mortgages, where averages have seen one-week increases of nearly half a percentage point and, this week, a drop of 30 basis points. 

What’s behind the differences in rate movement for the products, which for consumers can seem very similar in that they’re all loans taken out against property? It has to do with how lenders decide what to charge, says Greg McBride, chief financial analyst at Bankrate, which like NextAdvisor is owned by Red Ventures. 

“Mortgage rates are dictated by investors in the secondary market,” McBride says. “Home equity rates are based on the lender’s cost of funds and risk of being in the second lien position.”

While this week’s changes for home equity loans were negligible — at just a couple of basis points, they were essentially flat — McBride notes that they have changed quite a bit since January. “The average home equity loan rates are up pretty notably since the beginning of the year, up [more than 75 basis points],” he says. “Of course that pales in comparison to what we’ve seen in mortgage rates but that’s apples and oranges.”

Experts expect that rates will keep rising through the year as banks’ cost of borrowing money rises.

Here are the average rates as of July 6, 2022: 

Loan TypeThis Week’s RateLast Week’s RateDifference
$30,000 HELOC4.88%4.75%0.13
10-year, $30,000 home equity loan6.86%6.83%0.03
15-year, $30,000 home equity loan6.85%6.83%0.02

How These Rates Are Calculated

These rates come from a survey conducted by Bankrate, which like NextAdvisor is owned by Red Ventures. The averages are determined from a survey of the top 10 banks in the top 10 U.S. markets.

What Factors Affect Home Equity Loan and HELOC Rates?

Interest rates for home equity loans and HELOCs are expected to keep rising through the end of 2022. Many HELOCs base their variable rate on the prime rate published by the Wall Street Journal, which tends to track increases in short-term interest rates by the Federal Reserve. Observers expect the Fed to keep raising its benchmark rate to combat high inflation. For home equity loans, rates are also likely to keep climbing as banks’ borrowing costs increase. 

Consumers are turning more to home equity products due in part to the recent dramatic increases in mortgage rates, which have made cash-out refinances less attractive. Cash-out refis were popular in recent years as mortgage rates were at record lows and home prices increased, but mortgage rates have risen more than two percentage points since the start of the year, making consumers far less likely to want to take on a significantly worse mortgage rate just to get some cash.

Experts also say you should keep an eye on more than just the rate for these loan products. They often come with fees, which can make one product with a lower rate actually cost you more. 

Pro Tip

In addition to comparing interest rates for home equity loans and HELOCs, look at the fees for each one. That may make a product with a higher interest rate more appealing.

What’s the Difference Between a Home Equity Loan and a HELOC?

When your home’s value is more than what you owe on mortgages and other home loans, that difference is called equity. With a home equity loan or HELOC, you borrow cash with that equity as collateral, often to fund home improvement projects or other major expenses. 

Home equity loans and HELOCs work differently:

Home equity loans function similarly to a fixed-rate mortgage, in which you borrow a lump sum of cash up front and pay it back in installments over a set number of years at a set interest rate. 

HELOCs are more like credit cards, in that the bank gives you a maximum amount you can borrow at once during a draw period — a line of credit — and you can take out some, pay it back, and borrow more until the draw period ends. You’ll pay interest only on what you borrow. The interest rate is often variable, meaning it will change over time with what the going rate is, typically based on a benchmark like the prime rate.

There Are Risks to Home Equity Loans and HELOCs

Like a mortgage, home equity loans and HELOCs are secured against your home. If you don’t pay it back, the bank can take your house. It’s also important to understand that just because the value of your house has increased doesn’t mean it will stay there forever. Real estate values can drop. Your local market might even see prices fall while national averages increase. 

“I think you have to look at it as if the amount you could sell your house for might go down in the future and you don’t want to borrow too much against it because at closing you’d have to pay back an unusually large sum,” Linda Sherry, director of national priorities for Consumer Action, a national advocacy group, told us. “You might end up underwater in a really bad scenario, where you would owe back more at closing than you actually were able to sell the house for.”

How Does the Housing Market Affect My Home Equity?

Many homeowners have more equity in their homes now because of the big run-up in housing prices in the past two years. The median home listing price was $450,000 in June, an increase of 38.5% compared to June 2019, according to Realtor.com. Higher mortgage rates have slowed down the pace of home sales, experts tell us, but prices are unlikely to come down in any significant way nationwide. 

That rapid appreciation means your home is worth a lot more than it was two or three years ago, and that you didn’t have to do anything to earn that added equity. That gives you more flexibility to take out loans or lines of credit against your home equity, if you understand the risks.