HELOC and home equity rates are at multi-year lows

Image: Getty Images; Diagram: Bank Rate

Home equity borrowing costs have fallen to levels not seen in nearly three years. The $30,000 home equity line fell 13 basis points to 7.31%, according to Bankrate’s national lender survey. Meanwhile, five-year, $30,000 home equity loans fell 2 basis points to 7.90%.

In this favorable interest rate environment, how do you decide whether a HELOC or a home equity loan is the best option for you? Brett Schiffer, chief credit officer at Cross Country Mortgage, says borrowers should ask themselves the following important questions:

• How much money do I need?

• Do I need to withdraw money once or multiple times?

• What do you think about interest rates rising or falling?

“Once you answer these questions, talk to your loan officer,” Schiffer says. “Share your goals and current financial situation and work with us on a plan that fits your unique situation.”

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.