HELOC, home equity interest rates skyrocket

Image: Getty Images; Diagram: Bank Rate

Housing property interest rates recorded a significant rise this week. The $30,000 home equity line rose 16 basis points to 7.26%, according to Bankrate’s national lender survey. Meanwhile, five-year, $30,000 home equity loans rose 12 basis points to 8.03%.

Despite this week’s rise, home equity rates remain at their most affordable levels in years. Roger Boschulte, head of auto and mortgage products at Bank of America, points to two factors supporting demand for mortgage loans.

“If you look at tappable equity, we’re still over $11 trillion, which is near record levels. That’s one of the aspects that is contributing to the increase in originations in the home equity space,” he says. “Another notable tailwind is the lock-in effect of low mortgage rates facilitated by pandemic-era policies. Customers want access to equity and want to ensure that rates remain low.”

What is driving home interest rates up today?

Home equity rates are primarily driven by two factors: Federal Reserve policy and long-term inflation expectations.

As expected, the Fed left interest rates unchanged at its most recent policy meeting in May. However, there is growing uncertainty about future developments. In the biggest public dissent since 1992, four Fed officials opposed the decision to keep interest rates unchanged.

“If there’s no inflation from the Iran war, there’s a good chance the Fed will cut rates,” said Ted Rothman, chief analyst at Bankrate. “They’re sitting on the sidelines for now, waiting to see what happens with prices. The other side of the Fed’s dual mandate, the job market, looks relatively stable right now.” As a result, Rothman predicts, “balances in 2026 should be in a roughly flat interest rate environment, meaning the average interest rate on HELOCs will be about 7% and the average interest rate on home equity loans will be about 8%.”

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.

While it’s helpful to know the average interest rate, the individual offer you receive on a HELOC or new home equity loan will also reflect additional factors, such as your creditworthiness and financial situation. Next, there is the value of the home and the amount of 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.