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The average rate on a 20-year HELOC, or home equity line of credit, is 7.14%, the highest it has been in the past year, according to Bankrate.com. Meanwhile, the rate on a 10-year HELOC is 4.74%, up 0.03% from last week.
Home equity lines of credit allow homeowners to 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 give owners the flexibility to use the money only as needed and only pay interest on what is used.
Related: Best home equity lenders
10-year HELOC rate
This week’s average interest rate for a 10-year HELOC is 4.74%, down from 4.71% last week. That compares to the 2.55% 52-week low.
At the current interest rate, a $25,000 10-year HELOC would cost about $99 per month during the 10-year draw period.
HELOCs have a fixed drawdown period, often 10 years, followed by a repayment period which may be equal to or different from the drawdown period. During the repayment period, the interest rate may change. This is different from home equity loans, where amounts are disbursed all at once, but carry a fixed interest rate for the term of the loan.
Typically, a borrower only pays interest during the drawdown period.
20-year HELOC rate
The average interest rate on a 20-year HELOC is 7.14%, down from 6.60% last week. This week’s rate is above the 52-week low of 5.03%.
At the current interest rate, a $25,000 20-year HELOC would cost about $149 per month during the draw period.
HELOC Rate Information
With the Federal Reserve raising its federal funds rate, borrowers could see HELOC rates rise this year. Typically, HELOC rates move in step with rate increases by the Fed.
The current 10-year average HELOC rate is 4.74%, but over the past 52 weeks it has fallen to 2.55% and 5.64%. On a 20-year HELOC, which has a current average rate of 7.14%, the low of 52 is 5.03% and the high is 7.14%.
HELOCs vs home equity loans
HELOCs are a type of credit product called revolving credit, which refers to how they allow borrowers to withdraw money, pay it back, and then withdraw more, as needed. This process can be repeated over the life of the line of credit, which is often 10 years.
In exchange for this flexibility, however, borrowers give up the certainty of a fixed interest rate. HELOC rates track interest rates influenced by the Federal Reserve, which recently began a multi-year rate hike process.
This can make HELOCs less attractive than other products, such as home equity loans, which have fixed interest rates. In exchange for interest rate certainty, home equity loan borrowers take out a set amount of money all at once and repay it in regular installments.
How to find the best HELOC rate
It’s more common to start your search for the best HELOC rate with the lender who holds your first mortgage, as they already know your home and your credit profile.
You can also research rates online to compare lenders with your current mortgage lender before fully applying for a HELOC. You may want to prequalify online with a few lenders, which can give you an idea of the terms and rates they offer, as well as the fees they will charge.
Lenders set their HELOC rates based on what’s called the prime rate, which is what banks and other financial institutions use for creditworthy borrowers who take 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.
Frequently Asked Questions (FAQ)
Why can I use a HELOC?
You can use funds from a HELOC for all kinds of expenses, from home improvements to big-ticket items to tuition. But since money borrowed through a HELOC is subject to a variable interest rate that can increase over time, there might be better ways to finance certain purchases that come with fixed interest rates.
How much money can I borrow with a HELOC?
Most lenders will allow you to borrow up to 80% or 85% of the equity in your home. The value of your home is determined by an appraisal.
How can I find out the equity in my property?
Home equity refers to the amount you own – the appraised value of the property minus anything you owe someone else, such as a mortgage lender.