Housing asset interest rates remain stable at the lowest level in several years

Image: Getty Images; Diagram: Bank Rate

There has been no movement in housing asset interest rates over the past week. According to Bankrate’s national lender survey, $30,000 home equity lines of credit and five-year $30,000 home equity loans remained unchanged at 7.18% and 7.84%, respectively.

Jeff Dergrahian, LoanDepot’s chief investment officer and chief economist, said that with home equity interest rates at their lowest levels in three years, HELOCs can be a good option for homeowners with a lot of equity or upcoming expenses.

“You might find your mortgage rate is 3% or less during the pandemic and you don’t want to let it go, but you have one or more life events coming up,” he says. “Maybe you have more than one child going to college and want to borrow money to help pay for it. A HELOC is a useful feature because it allows you to withdraw money now and potentially years later if the drawing period is still open.”

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.

While knowing the average interest rate is helpful, the individual offer you receive on a particular HELOC or new home equity loan will also 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.