The Latest Drop in HELOC Rates Won’t Last. What to Consider Before Tapping Your Home’s Equity

An image of two people hanging a picture is used to illustrate an article about home equity loan and line of credit 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

  • The average interest rate for a HELOC dipped a bit last week.
  • A recent survey found 87% of homeowners have seen an increase in home equity since purchasing their homes.
  • With continued rate hikes expected from the Federal Reserve, one expert predicts rates for home equity loans and HELOCs to reach the “mid 7% range.”

Most homeowners have seen an increase in their home equity, but those wanting to tap into it face rising interest rates as a wave of high inflation persists. 

The average interest rates for home equity loans and lines of credit (HELOCs) moved just a few points last week. 

The average rate for a $30,000 HELOC is at 7.30%, down 3 basis points week-over-week. That dip comes as rates have been climbing due to the Federal Reserve’s rate hikes, hinting that lenders may be adjusting their rates. Meanwhile, rates for home equity loans increased a bit.

A recent survey from TD Bank found that 87% of homeowners have seen an increase in their home equity since purchasing. However, only 48% would strongly consider applying for home equity financing in the coming year. 

“It’s an interesting dynamic in the home equity market right now. We’re seeing record highs in terms of available equity, but on the other side, we’re seeing an increase in rates as a result of the Fed’s rate hikes,” says Jon Giles, head of consumer direct lending at TD Bank. 

With the Fed expected to continue hiking its interest rate next month in the face of persistently high inflation, other interest rates will climb. “I do believe we’ll see increases that would put us somewhere in the mid 7% range,” says Giles. 

Here are the average home equity loan and HELOC rates as of Oct. 19, 2022: 

Loan TypeThis Week’s RateLast Week’s RateDifference
$30,000 HELOC7.30%7.34%– 0.03
10-year, $30,000 home equity loan7.43%7.34%+ 0.09
15-year, $30,000 home equity loan7.38%7.26%+ 0.12

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? 

Borrowing money with a home equity loan or HELOC is a lot like taking out a personal loan, except they’re secured loans. You use the difference between what your home is worth and what you owe on your mortgage as collateral. 

Here’s how the two products work: 

Home equity loans provide you with a one-time lump sum of cash. You’ll pay it back over a set period of time, generally at a fixed interest rate. “Even though rates have gone up, they’re still historically fairly low. So, we definitely see a healthy appetite for home equity,” says Giles. 

A HELOC is a flexible lending option, meaning you can withdraw funds as needed. While there’s a limit to how much you can take out at once, you’ll only pay interest on what you’ve borrowed. Keep in mind, though, interest rates for HELOCs are often variable. 

Because the variable interest rates for HELOCs are generally tied to the Federal Reserve’s rate increases, its slight dip this week is interesting. “In this rate environment, as the prime goes up, banks are looking at taking on the entire increase of the prime or adjusting rates. We’re seeing an adjustment, but not anything too significant,” says Giles.  

Pro Tip

Before applying for home equity financing, shop around with different lenders to see where you can get the best rate.

What Should Consumers Know About Home Equity Loans and HELOCs?

With inflation at 8.2% year-over-year in September, borrowers in need of cash are turning to the home equity market.  

One of the biggest benefits of owning a home is the ability to build equity. With a home equity loan or HELOC, you can take advantage of the existing equity in your home at a relatively low interest rate. 

“We’re in a market where people need to be aware of the changing rate environment, but also understand their different borrowing options,” says Giles. 

However, there’s always risk involved when you borrow against your home. If you default on payments, you run the risk of losing your home. “We always stress the importance of understanding your budget,” says Giles, “But also, think about the type of schedule you want to put yourself on to to pay down not just the interest-only payment, but the principal.” 

How to Get Home Equity Financing

Getting home equity financing is a fairly simple process, but it’s still important to do your due diligence. Before applying, compare different lenders to see where you can get the best rate. Take a look at the application requirements, which most banks will have online, and understand what documents they may require. 

“Most of us look at a very similar set of requirements,” says Giles. “We’ll need to verify income as well as employment. Then we’ll look at the valuation of the property itself,” which will determine your loan’s dollar amount and interest rate. 

How to Use Home Equity

While you can use home equity for many things, the most popular uses are home renovations and debt consolidation

“Don’t just think about home equity borrowing as a single loan. Think about what you’re using it for. Are you using it for something that will add value to your home? In that sense, it’s an investment.” says Giles. 

Home equity loans and HELOCs can be a great option if you have a set plan to pay it off. Especially in today’s economic environment, relying on a home equity loan or HELOC to reduce debt is risky. If you’re looking to curb how much debt you’re taking on, address your spending habits first.