Why Home Equity Loans And HELOCS Are Gaining Popularity Despite Rising Rates

An image of a person working on a house is used to illustrate an article about home equity loan rates. Credit: Getty Images
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.

Key Takeaways

  • Home equity loan and line of credit (HELOC) rates went up slightly last week.
  • A recent survey found 29% of homeowners are considering tapping into their home equity, noting cash-out refinancing is no longer an option due to high mortgage rates.
  • Experts strongly recommend having a repayment plan in place before borrowing with a home equity loan or line of credit.

Sometimes no news is good news. While inflation remains consistently high, home equity loan and line of credit (HELOC) rates didn’t see much movement last week, increasing by just a few points. 

The average rate for a $30,000 HELOC is at 7.34%, rising 7 basis points week-over-week. Home equity loan rates also ticked up.

During a year in which mortgage rates have more than doubled, demand for home equity products is high

According to a recent survey from Point, a home equity investment platform, 29% of homeowners are considering tapping into their home equity despite historically high interest rates. “Homeowners cite a lack of other financing options,” as mortgage rates continue to flirt with 7%. 

Home equity loan and HELOC rates aren’t a perfect escape from the increases in mortgage rates – experts expect they’ll keep rising. “I don’t expect [rates] to rise at the rate they have been over the last nine to 12 months. But I think they will go up. I’m hopeful that they’ll slow down, but we’ve seen a lot of up and down so it seems like there’s still room for them to rise,” says Kevin Williams, CFP, and founder of Full Life Financial Planning. 

Here are the average home equity loan and HELOC rates as of Oct. 12, 2022: 

Loan TypeThis Week’s RateLast Week’s RateDifference
$30,000 HELOC7.34%7.27%+ 0.07
10-year, $30,000 home equity loan7.34%7.27%+ 0.07
15-year, $30,000 home equity loan7.26%7.18%+ 0.08

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?

With inflation at 8.2% year-over-year in September, borrowers in need of cash are looking to leverage their home equity. Home equity loans and HELOCs are secured loans, meaning you use the difference between what your home is worth and what you owe on mortgages as collateral. 

Here’s the difference between the two products

With a HELOC, you have access to a revolving line of credit — much like a credit card. They can be a bit riskier because they tend to have variable interest rates tied to the Federal Reserve’s rate increases. “So in a rising interest rate environment, the rate on your HELOC is going to increase,” says Niv Persaud, CFP, and managing director at Transition Planning & Guidance. As a result, there are limits on how much you can take out at once, but you’ll only pay interest on what was borrowed. 

When you borrow with a home equity loan, on the other hand, it’s a one-time infusion of cash that you pay back over time. Home equity loans almost always have a fixed interest rate, meaning your monthly payment won’t change as rates bump around.

What Should Consumers Know About Home Equity Loans and HELOCs? 

With mortgage rates what they are, a lot of people are taking stock of their home equity, says Persaud. But remember, borrowing with home lending products comes with some serious risks. 

“People should always be mindful of long-term borrowing and not see it as an easy way to access money without a plan to pay for it,” Williams says. “Where the purchasing side of it is very easy, it’s the payments that tend to get people into trouble.”. 

How to get home equity financing

The application process for home equity loans and HELOCs is less complicated than that for a mortgage, making it an attractive option. However, it’s important to shop around with different lenders to get the best rate. 

Working with a lender you trust is going to help protect the asset you’re dipping into: your home. Defaulting on your payments or failing to understand the cost of home equity loans and HELOCs is the last thing you want to happen. When accessing your home equity, experts stress you read the fine print. 

How to use home equity

There’s no shortage of ways to use home equity, but the most common uses of home equity are for home improvements and debt consolidation

“It’s not going to be one-size-fits-all,” says Persaud. “It’s really going to depend on your circumstances, but if you’re looking to consolidate debt, make sure you pay attention to how you got into debt in the first place,” rather than using your home equity as a salve. 

A home equity loan or HELOC is not the key to reducing debt. Understanding your spending habits is. You run the risk of losing your home if you don’t change your spending habits and continue to take on more debt.

Pro Tip

Using a home equity loan or HELOC for debt consolidation is risky if you don’t address the behaviors that got you into debt in the first place.