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The average rate on a 10-year HELOC (home equity line of credit), hit a new high—6.20%, according to Bankrate.com. Meanwhile, the rate on a 20-year HELOC is 7.19%, down 9 basis points from 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
What Are Current HELOC Rates?
10-year HELOC Rates
This week, the average interest rate on a 10-year HELOC is 6.20%, a slight jump from the previous week, when it was 6.11% and 2.55%, the low over the past year.
At the current interest rate, a $25,000 10-year HELOC would cost approximately $129 per month during the 10-year draw period.
It’s followed by the repayment period, when interest and principal must be paid. Home equity lines come with variable interest rates, so your rate can rise during the repayment years. A HELOC’s term is the same as its repayment period, so a 10-year home equity line gives a borrower 10 years to pay back the loan.
Borrowers usually pay only interest during the draw period. However, some borrowers may choose to always pay down the principal amount, too.
20-year HELOC Rates
The average interest rate on a 20-year HELOC is 7.19%, down a bit from 7.28% last week. This week’s rate is higher than the 52-week low of 5.14%.
At today’s interest rate of 7.19%, a $25,000 20-year HELOC would cost approximately $150 per month during the draw period.
How Do I Qualify for a HELOC?
If you already have a mortgage, some of the requirements for taking out a HELOC will likely be familiar. As a rough rule of thumb, homeowners usually need a maximum debt-to-income (DTI) ratio of 43%; a minimum credit score of 620; a history of on-time mortgage payments; and at least 15% to 20% equity in the home. Some of the specifics may vary from lender to lender.
In addition, lenders typically require an appraisal to determine the value of the home, which in turn determines how much equity the owner has.
HELOC Rate Insights
HELOC rates are tied more closely to banks than are first-mortgage rates, which tend to track the performance of the bond market. The Federal Reserve, which controls the interest rates that banks charge each other, has signaled to investors that it expects to raise the fed funds rate several times in 2022 and beyond.
Currently, the 52-week high on a 10-year HELOC is 6.20%, 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%.
HELOCs vs. Home Equity Loans
HELOCs, like credit cards, are what’s known as revolving credit products. That refers to the ability of a borrower to draw money, repay it and draw more. That process can be repeated throughout the life of the line of credit, which in most HELOCs is 10 years.
That makes HELOCs quite different from home equity loans, which require the homeowner to specify a certain lump-sum amount to be borrowed, and then pay it back in regular installments. But home equity loans do come with set interest rates, while lines of credit have variable rates.
That may make lines of credit less appealing now, as the Federal Reserve embarks on a cycle of raising interest rates several times over the next few months and years.
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?
Home equity loans are another way to leverage the equity you have in your home. They are taken out for a set amount and paid back on a regular basis, according to a fixed interest rate.
A cash-out refi is another option. It involves refinancing your existing mortgage into a smaller one and taking the difference between the two as cash.