Current Interest Rates For Home Equity Loans and Where to Get the Best Deal

Home equity loans allow homeowners to tap into the equity they’ve built up in their home to access funds for various purposes like home improvements, debt consolidation, major purchases, and more. Interest rates on home equity loans have risen over the past year but remain relatively low compared to other financing options. This article will cover current average interest rates, factors that determine your rate, and tips for getting the best rate on a home equity loan.

What Are Current Average Home Equity Loan Rates?

The interest rate you can qualify for on a home equity loan depends on several factors, including your credit score, loan amount, and loan-to-value (LTV) ratio. National averages provide a baseline for comparison.

According to Bankrate’s weekly national survey of large lenders, as of February 2023:

• The average interest rate on a home equity loan is 8.14%.
• For a 10-year fixed home equity loan, the average rate is 8.34%.
• And for a 15-year fixed home equity loan, the average rate is 7.99%.

These averages are based on a $30,000 loan amount, a credit score of 700, and an 80% LTV ratio.

To give more perspective, here are the current average rates in five major metropolitan markets:

• Boston: 7.74%
• Chicago: 8.94%
• Detroit: 9.49%
• New York: 8.99%
• Philadelphia: 8.08%

Home equity loan rates have risen over 1% in the past year as the Federal Reserve has increased the federal funds rate to combat inflation. However, rates are still relatively low compared to alternatives like credit cards, personal loans, and cash-out refinances.

How HELOC Rates Compare

HELOCs tend to have slightly lower interest rates than home equity loans, but the rates are variable instead of fixed.

Current average HELOC rates:

• National: 8.59%
• 10-year fixed: 8.81%
• 15-year fixed: 8.24%

Again, these are national averages across loan amounts, credit scores, and LTV ratios.

What Determines Your Home Equity Loan Interest Rate?

Many factors affect the specific interest rate you’ll be offered by lenders for a home equity loan. Key factors include:

• Credit score: The higher your score, the better rate you can qualify for. Aim for at least 660.
• Loan-to-value (LTV) ratio: The amount you owe compared to your home value. The lower the LTV, the better the rate.
• Loan amount: Interest rates are generally lower for larger loan amounts.
• Property location: Rates can vary by state and region. Compare quotes in your local area.
• Loan term: Shorter terms often have lower rates. But longer terms mean lower monthly payments.
• Payment history: Lenders reward reliability with better rates.
• Debt-to-income ratio: Lenders limit the amount of debt you can carry compared to your income.
• Autopay discounts: Many lenders knock 0.25% off rates for enrolling in autopay.

Shopping around and comparing quotes from multiple lenders can help ensure you get the most competitive rate for your financial situation. Prequalifying online makes this easier.

READ ALSO: Home Equity Line of Credit: A Comprehensive Guide to HELOCs

Tips for Getting the Best Home Equity Loan Rate

While you can’t control financial markets, you can take steps to secure the lowest rate possible on a home equity loan for your situation:

• Improve your credit score. Pay bills on time, lower balances on credit cards and other revolving debt, and correct any errors on your credit reports.
• Ask about relationship discounts. Some lenders offer better rates to existing customers with checking, savings, or investment accounts.
• Lower your LTV ratio. Making extra mortgage payments before applying can help. Home improvements that boost value also help.
• Compare quotes from multiple lenders. Online lending marketplaces let you easily shop and compare offers.
• Choose shorter loan terms. 15-year home equity loans often have lower rates than 30-year terms.
• Enroll in autopay. Taking this small step can score you a discount of 0.25% or more.
• Lock your rate. Rates change daily. Locking in your rate as soon as possible protects you from increases.
• Be flexible on closing timeline. Giving yourself more time can help land better deals.
• Bring documentation. Having pay stubs, tax returns, and statements ready can make for a smoother process.

Where To Find The Best Home Equity Loan Rates

The most important step is shopping around and comparing quotes from multiple lenders. Here are some good places to look for top rate offers:

Online Lenders and Marketplaces

• LendingTree – Compare quotes from multiple lenders at once. No impact on your credit.
• Lightstream – Specializes in loans for those with great credit (660+ scores). Competitive fixed rates as low as 3.99%.
• PenFed Credit Union – Top nationwide lender with home equity loans starting at 6.49% APR. Plus relationship discounts.
• Lenda – Leading online lending marketplace. Custom quotes from over 300 lender partners.
• Credible – Prequalify with multiple lenders to compare personalized rate offers.

Banks and Credit Unions

• Local banks and credit unions – May offer special discounts and the best service for existing members and customers.
• Bank of America – BOA offers home equity loans and lines starting at 5.09% APR for qualifying applicants.
• Wells Fargo – Wells Fargo home equity loans start at 4.99% APR with AutoPay discounts available.
• SunTrust – Among the largest lenders in the Southeast. Offers loans starting at 5.25% APR.
• PNC – Top regional bank providing home equity loans starting at 5.59% APR with relationship pricing incentives.

Retail and Online Banks

• Citibank – National lender with loans starting at 6.24% APR. Discounts for Citigold customers.
• U.S. Bank – Large retail bank offering home equity loans starting at 5.68% APR for eligible borrowers.
• Ally Bank – Top online bank with fixed rates as low as 5.99% APR with autopay.
• TD Bank – Major East Coast lender with home equity loan rates starting at 5.99% APR.
• Discover – Known for credit cards but also offers online home equity loans starting at 6.49% APR.

Tips for Comparing Lender Rate Offers

When looking at lender quotes and rate offers, keep these tips in mind:

• Look at APR, not just interest rates. APR includes fees and gives the full cost picture.
• Make sure you’re comparing the same loan term lengths.
• Understand if the rate is fixed or variable. Variable rates can increase over time.
• Ask about discounts for autopay, existing customers, etc.
• Get full details on all fees to accurately compare costs.
• Prequalify and compare personalized quotes, not just advertised rates.
• Evaluate each lender’s customer service reputation and offerings.

What Are Current Home Equity Loan Rates by Credit Score?

While rates and eligibility depend on many factors, your credit score plays a major role. Those with higher credit scores qualify for lower interest rates.

Here are the average home equity loan rates currently available to borrowers based on credit score ranges:

As you can see, just a 100-point difference in your credit score can equal savings of over 2% on your home equity loan rate.

Improving your credit score to reach a range above 700 can significantly lower the rate lenders will offer. Paying down debts, avoiding late payments, and correcting errors on your credit reports are key ways to boost your score over time.

READ ALSO: How to Use a HELOC Calculator to Find Your Best Rate

How High Are Current HELOC Rates By Credit Score?

HELOC rates also closely track with credit scores. Here are the current average HELOC rates by credit score tier:

The takeaway is the same: Maintaining an excellent credit score in the 720+ range can save you thousands of dollars over the life of a HELOC. Paying down revolving credit card debt can provide one of the quickest score boosts before applying.

How Are Home Equity Loan Rates Determined?

Many factors go into how lenders set interest rates on home equity loans and HELOCs. These include:

• The Federal Funds Rate – Interest rates on home loans are influenced by moves from the Federal Reserve. When the Fed raises or lowers its benchmark federal funds rate, costs of borrowing adjust up or down.
• Treasury Yields – The yields on 10-year Treasury notes impact mortgage rates. As yields rise, home equity loan rates tend to follow.
• Competition – To attract borrowers, lenders compete by offering competitive rates. More lenders and financing alternatives keep rates lower.
• Loan Demand – When demand goes up, lenders can charge higher rates. Low demand leads to lower rates.
• Operational Costs – Lenders factor in their own cost of doing business when pricing interest rates.
• Risk Factors – A borrower’s credit score, equity, and ability to repay factors into a lender’s risk and rate charged.

So in addition to borrower factors we control, like credit score, broader economic factors outside our control also dictate rate trends.

Current Rate Trends and Forecast

Home equity loan and HELOC rates rose significantly in 2022 and 2023 as the Federal Reserve rapidly increased its federal funds rate to tame inflation. But rates appear to have peaked and stabilized over the past few months.

In their January 2023 meeting minutes, the Fed indicated it may slow the pace of future hikes as inflation shows signs of easing. Most experts expect rates to remain near current levels or even decline slightly over the course of 2023.

Mortgage technology firm Black Knight predicts:

• The 30-year fixed mortgage rate dropping to around 5.2% by early 2024.
• Home equity rates declining about 0.50% from 2022 highs.
• HELOC rates falling from 10%+ in late 2022 to around 8% by late 2023.

A stabilization or reduction of rates will restore some of home equity loans’ appeal over alternatives like credit cards and personal loans.

Shopping lenders and locking rates promptly remains important, as daily rate movements will continue. But the major upward surge in rates appears to be slowing for now.

Home Equity Loan vs. HELOC: Which is Better?

Home equity loans and HELOCs serve similar purposes, but there are some key differences borrowers should understand:

Interest rate type – Home equity loans have fixed rates, while HELOC rates are variable. Fixed rates provide certainty, while variable rates can go up or down.

Payments – Home equity loans have fixed monthly principal and interest payments. HELOCs offer flexible draw periods where you only pay interest, followed by a repayment period.

Interest deduction – For tax purposes, it’s easier to deduct interest on a home equity loan used for home improvements.

Closing costs – Home equity loans often have higher upfront fees at closing, while HELOC closing costs are minimal.

Ongoing fees – HELOCs may charge annual maintenance fees. Home equity loans typically don’t have recurring fees.

Risks – Variable HELOC rates come with risk of payment increases if rates rise significantly. But borrowers have flexibility to pay less during low rate periods.

Best uses – Home equity loans work for large, one-time cash needs. HELOCs allow you tap equity as needed for ongoing projects.

In general, HELOCs can provide lower costs and more flexibility. But fixed-rate home equity loans offer stability and predictable payments that may better suit some borrowers.

READ ALSO: Understanding Fixed-Rate HELOCs: Your Comprehensive Guide

To Recap

Home equity loans and HELOCs remain economical ways for homeowners to access their equity for large expenses and consolidated debt repayment. While rates have ticked up along with broader economic trends, they remain relatively low and competitive.

Shopping multiple lenders, maintaining excellent credit, and locking in rates promptly remain the keys to securing the best loan terms. Comparing both home equity loans and HELOCs can help you choose the right product for your specific financial situation and goals.

Frequently Asked Questions

What credit score is needed for the best home equity loan rates?

To qualify for the lowest rates, you’ll generally need a credit score of at least 700, and ideally 740 or above. Maintaining a low debt-to-income ratio also helps secure the best pricing.

How soon can I get a home equity loan after buying a house?

Most lenders require you wait at least 12 months after purchasing to apply for a home equity loan or line using that property as collateral. Some may allow exceptions for major repairs.

Should I get a home equity loan or HELOC?

HELOCs are generally more flexible and cost less upfront. But a fixed-rate home equity loan provides rate and payment stability that some borrowers prefer. Your specific needs should drive the decision.

What are the main costs with a home equity loan?

The primary costs are interest paid over the loan term, closing costs such as appraisal and origination fees, and any annual fees the lender charges. Closing costs for home equity loans often range from 2% to 5% of the loan amount.

How long does it take to close a home equity loan?

Closing often takes anywhere from 2 to 6 weeks but can be quicker with an online lender. You’ll receive loan funds at closing, which is typically handled by a title company, escrow agent or attorney.

Can a home equity loan be used for anything?

Technically yes, but a wise strategy is using funds in ways that improve your financial well-being rather than discretionary spending that could put your equity at risk if not repaid.

In another related article, Understanding Interest-Only HELOCs: A Comprehensive Guide