HELOC and home equity interest rates fall to three-year lows

Image: Getty Images; Diagram: Bank Rate

Home equity interest rates fell this week to their lowest level in nearly three years. The $30,000 home equity line fell 1 basis point to 7.31%, according to a national survey of financial institutions conducted by Bankrate. Meanwhile, five-year, $30,000 home equity loans fell 3 basis points to 7.89%.

Interest rates can influence your choice of home equity product, but they are not the only factor that does. Kennon Chen, executive vice president of strategy and growth at real estate analytics and data firm ClearCapital, said homeowners typically hold large amounts of equity, but growth has slowed in some parts of the country. In some areas, prices are also softening as housing supply increases.

“That’s something people should consider in what type of loan they take out,” he says. “Are they taking out a closed-end home equity loan up front?[They]need to have a clear understanding of where their loan-to-value ratio stands. Or, if they’re getting a home equity line of credit, they should consider home price trends when considering taking out that line of credit.”

What is driving home interest rates up today?

Home equity rates are determined primarily by two factors: Federal Reserve policy and long-term inflation expectations. The Fed kept interest rates on hold at its January meeting as it continued to monitor inflation and the job market. Looking ahead to the rest of this year, Bankrate senior industry analyst Ted Rothman expects the Fed to cut rates by three quarter points in 2026.

“Inflation continues to ease, albeit slowly, and the job market appears to be stabilizing after rising unemployment,” he said. “Right now, the risks appear to be fairly balanced, and it will likely take some time for the Fed to decide on its next action. A new Fed chair will also be installed soon.”

Comparison of current home equity interest rates and interest rates on other types of credit

Because HELOCs and home equity loans use your home as collateral, their interest rates tend to be much cheaper than the interest rates charged on unsecured credit cards or personal loans, and are closer to current mortgage rates.

Average interest rates are good to know, but the individual offer you receive on your particular HELOC or new home equity loan will reflect additional factors such as your creditworthiness and financial situation. Then there is the value of the home and the size of the ownership. Lenders typically limit all home loans (including mortgages) to a maximum of 80% to 85% of the home’s value.

Remember: Even if you can secure a favorable interest rate from a lender, home equity products are still relatively high-cost debt.