- The average rate for a home equity line of credit, or HELOC, is 7.89%, jumping 19 basis points week-over-week.
- A recent study shows home prices would have to drop 27% in order to wipe out all equity gains for homeowners who purchased a house in July 2020.
- Rates for home equity loans and HELOCs are expected to fluctuate in the near to mid-term.
Another week, another increase in the average rate for a home equity line of credit (HELOC), which has risen 57 basis points over the past two weeks.
The average rate for a home equity loan ticked up slightly after not moving last week.
Home equity rates are rising in tandem with increases to short-term rates by the Federal Reserve. In its ongoing bid to cool inflation, the Fed has been hiking its federal funds rate, most recently by 75 basis points in November.
Those increases might be having their intended effect. The Consumer Price Index showed inflation at 7.7% year-over-year in October, lower than expected after months above 8%. However, it’s too soon to tell if this will last.
While rising interest rates could push the economy into a recession, homeowners still have high levels of tappable home equity, keeping foreclosures below pre-pandemic levels.
Despite a recent dip, home values are predicted to withstand the headwind of a cooling housing market. “For the average national homeowner who bought a home in July 2020, house prices would need to decline 27 percent to wipe out all of their equity gains from appreciation,” according to a recent report from First American Financial Corporation, a real estate services firm.
Generally, home equity loan and HELOC rates tend to move in tandem with rates for primary mortgages, says Cook.
“Many economists expect rates to stabilize and, if we were to head into a recession, rates possibly could begin to slowly come down,” says Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans. “Given all of the uncertainty, though, homeowners should generally expect rates to stay elevated in the near to mid-term.”
The average rate for a $30,000 HELOC is 7.89%, up 19 basis points week-over-week.
Here are the average home equity loan and HELOC rates as of Nov. 16, 2022:
|LOAN TYPE||THIS WEEK’S RATE||LAST WEEK’S RATE||DIFFERENCE|
|10-year, $30,000 home equity loan||7.57%||7.57%||none|
|15-year, $30,000 home equity loan||7.50%||7.49%||+0.01|
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 are Home Equity Loans and HELOCs?
Home equity loans and HELOCs are secured loans, meaning you use the difference between the value of your home and what you owe on your mortgage as collateral. As a result, you can typically get a more competitive rate with home equity financing than with, say, a personal loan or cash-out refinance.
Here’s how the two products work:
Similar to a personal loan, a home equity loan allows you a one-time cash-out which you’ll pay over a set period. The fixed rate associated with home equity loans make them attractive, particularly in a rising rate environment.
HELOCs, which provide borrowers with a revolving line of credit, are popular for the flexibility they provide homeowners. During the draw period, you often only pay interest on what you’ve actually used. However, HELOCs tend to have variable interest rates, meaning your monthly payment is subject to change as rates rise.
Before borrowing with a home equity loan or HELOC, be sure to shop around for lenders to see who can offer you the most competitive interest rate.
What Consumers Should Know about Home Equity Financing
Recent rate fluctuations reflect uncertainty around inflation. While the Fed may be ready to slow the pace of their rate hikes, it’s likely we’ll see higher rates for longer.
“I encourage consumers to do their homework to understand how current rates will impact their budget and financial situation,” Cook says.
If you have an existing home equity loan, rate increases won’t affect your monthly payments. But this is not the case for HELOCs. When borrowing with a HELOC, pay attention to where rates are going in order to keep an eye on your carrying costs.
How to Get Home Equity Financing
To borrow with a home equity loan or HELOC, you’ll first have to fill out an application with the lender of your choice. Your loan amount and interest rate will be determined based on your application.
Remember, the average rate might not be the rate you qualify for. You may end up with an interest rate higher or lower than the average. That’s why it’s a good idea to shop around for lenders to see who can offer you the best deal.
How to Use Home Equity
The most common uses of home equity loans and HELOCs are for debt consolidation and home improvement projects. However, consumers can tap their home equity for any number of reasons, whether it’s to pay for college, a car, or a second home.
“We are seeing a strong demand for home equity loans as they offer homeowners a means to utilize the available equity in their home at rates lower than alternatives,” Cook says.
By and large, experts caution against treating your home’s equity like an ATM. Your home is your greatest asset and resource. Any decision to tap into its equity should be taken seriously.
Home equity loans and HELOCs can be great financial tools, if you have a clear purpose for borrowing as well as a comfortable repayment strategy.