Key points to remember
- Home equity loans and lines of credit (HELOC) rates rose slightly last week.
- A recent survey found that 29% of homeowners are considering tapping into their home’s equity, noting that cash-in refinancing is no longer an option due to high mortgage rates.
- Experts strongly recommend having a repayment plan in place before borrowing with a home equity loan or line of credit.
Sometimes no news is good news. While inflation remains consistently elevated, home equity loan and line of credit (HELOC) rates haven’t budged much in the past week, rising only a few points.
The average rate for a $30,000 HELOC is 7.34%, rising 7 basis points week over week. Home equity loan rates have also increased.
In a year in which mortgage rates have more than doubled, demand for home equity products is high.
According to a recent survey According to Point, a home equity investment platform, 29% of homeowners plan to tap into the equity in their property despite historically high interest rates. “Homeowners cite lack of other financing options,” as mortgage rates continue to hover around 7%.
Home equity loan and HELOC rates aren’t a perfect escape from mortgage rate increases — experts expect them to keep rising.
“I don’t expect [rates] increase at the same rate as over the past nine to twelve months. But I think they will go up. I hope they slow down, but we’ve seen a lot of ups and downs, so it looks like they still have room to increase,” says Kevin WilliamsCFP and founder of Full Life Financial Planning.
Here are the average home equity loan and HELOC rates as of October 12, 2022:
|Type of loan||Price for this week||Last week’s rate||Difference|
|10-year $30,000 home equity loan||7.34%||7.27%||+0.07|
|Home equity loan of $30,000 over 15 years||7.26%||7.18%||+0.08|
How these rates are calculated
These rates come from a survey conducted by Bankrate, which, like NextAdvisor, is owned by Red Ventures. Averages are determined from a survey of the top 10 banks in the 10 major US markets.
What are home equity loans and HELOCs?
With inflation at 8.2% Year-over-year in September, borrowers in need of cash are looking to leverage the equity in their home. Home equity loans and HELOCs are secured loans, which means you use the difference between the value of your home and what you owe on the mortgages as collateral.
Here is the difference between the two products:
With a HELOC, you have access to a revolving line of credit, much like a credit card. They can be a little riskier because they tend to have variable interest rates tied to Federal Reserve rate increases. “So in a rising interest rate environment, your HELOC rate will go up,” says Lv Persaud, CFP and CEO of Transition Planning & Guidance. Therefore, there are limits to how much you can withdraw at one time, but you will only pay interest on what has been borrowed.
When you borrow with a home equity loan, on the other hand, it is a one-time infusion of money that you repay over time. Home equity loans almost always have a fixed interest rate, which means your monthly payment won’t change when rates go up.
What should consumers know about home equity loans and HELOCs?
With mortgage rates what they are, many people are taking stock of their home’s equity, Persaud says. But remember, borrowing with home loan products comes with serious risks.
“People should always be aware of long-term borrowing and not see it as an easy way to access money without having planned to pay it,” Williams says. “Where the buy side is very easy, it’s the payments that tend to get people in trouble.”
How to get home equity financing
The home equity loan and HELOC application process is less complicated than that of a mortgage, making it an attractive option. However, it is important to shop around with different lenders to get the best rate.
Working with a lender you trust will help protect the asset you’re drawing on: your home. Not making your payments or understanding the cost of home equity loans and HELOCs is the last thing you want to happen. When accessing the equity in your home, experts insist that you read the fine print.
How to Use Home Equity
There’s no shortage of ways to use home equity, but the most common uses for home equity are home renovations and debt consolidation.
“It won’t be a one-size-fits-all solution,” says Persaud. “It really depends on your situation, but if you’re looking to consolidate debt, make sure you pay attention to how much debt you got into,” rather than using your home equity as a balm.
A home equity loan or HELOC is not the key to reducing debt. Understanding your spending habits is. You run the risk of losing your home if you don’t change your spending habits and continue to take on more debt.
Using a home equity loan or HELOC for debt consolidation is risky if you don’t address the behaviors that got you into debt in the first place.