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The average rate on a 10-year HELOC, or home equity line of credit, is 6.09%, the highest it has been over the past year, according to Bankrate.com. Meanwhile, the rate on a 20-year HELOC is 7.33%, the same as last week.
Home equity lines of credit let homeowners convert their equity—the appraised value of the home minus anything owed to the mortgage lender—into cash. Often referred to as HELOCs, these products offer owners the flexibility to make use of cash only as needed, and to pay interest only on what’s used.
Related: Best Home Equity Loan Lenders
Current HELOC Rates
10-year HELOC Rates
The average interest rate on a 10-year HELOC is 6.09%, the same as it was last week. This week’s rate is the highest it’s been in a year.
At today’s rate, a $25,000 10-year HELOC would cost a borrower approximately $127 per month during the 10-year draw period.
A HELOC has a set draw period, often 10 years, that’s followed by a repayment period. The HELOC’s term is generally the same as its repayment period. So, a 10-year HELOC may give you 10 years to use the funds and 10 years to repay. HELOCs have variable interest rates, meaning that the interest rate may change as you are paying it back.
Borrowers typically pay only interest during the draw period but can pay down the principal too, although it’s not required.
20-year HELOC Rates
The average interest rate on a 20-year HELOC is 7.33%, down a bit from 7.36% last week. This week’s rate is higher than the 52-week low of 5.14%.
At today’s interest rate of 7.33%, a $25,000 20-year HELOC would cost approximately $153 per month during the draw period.
HELOCs vs. Home Equity Loans
Though both tap into your home equity and are backed by your house or other property, HELOCs and home equity loans have some key differences.
A HELOC lets you draw money as you need it and pay interest only on what you borrow during the draw period (usually 10 or 20 years). You repay the entire balance and interest during the repayment period (usually 20 years). Home equity loans require homeowners to take their funds all at once and repay the balance with fixed monthly payments.
This can make a home equity loan a better option if you have an extensive project and need one-time funding. Home equity loans have fixed rates, while the rates on HELOCs are variable.
How to Find the Best HELOC Rate
It’s most common to start your search for the best HELOC rate with the lender who holds your first mortgage since they know your home and credit profile already.
You can also look online for rates to compare lenders with your current mortgage lender prior to fully applying for a HELOC. You may want to complete online prequalification with a few lenders, which can give you a sense of the terms and rates they’re offering, as well as the fees they’ll charge.
Lenders set their HELOC rates based on something called the prime rate, which is what banks and other financial institutions use for creditworthy borrowers taking out loans and lines of credit. The prime rate is in turn based on the federal funds rate, which is set by the Federal Reserve.
HELOC Rate Insights
If you’re interested in tapping home equity, now is the time to do it. The Federal Reserve has signaled that it expects to raise its fed funds rate several times in 2022. This generally causes HELOC rates to move up.
Currently, the 52-week high on a 10-year HELOC is 6.09%, while the 52-week low is 2.55%. The 52-week high on a 20-year HELOC is 7.51% and the 52-week low is 5.14%.
Frequently Asked Questions (FAQs)
Is HELOC interest tax deductible?
Yes, if you itemize deductions, interest costs may be deductible if you use HELOC funds to pay for home improvements.
Will taking out a HELOC impact my credit score?
Lenders will perform a credit check when you apply for a HELOC, just like for any credit product, and that will reduce your credit score temporarily. But if you make repayments on a timely basis, your credit score will recover quickly.
It’s important to keep in mind that any HELOC is secured by your home, similar to a mortgage. That means failure to make timely repayments could put you in jeopardy of losing the property.
What are some alternatives to HELOCs?
You can leverage the equity in your home with home equity loans, which differ from lines of credit in that they are taken out for a set amount and paid back on a regular basis with a fixed interest rate.
You may also consider a cash-out refinance, which involves refinancing your current mortgage into a smaller one, and pocketing the difference as cash.