KEY POINTS TO REMEMBER
- The average rate for a home equity line of credit, or HELOC, is 7.89%, jumping 19 basis points week over week.
- A recent study shows that house prices would have to fall by 27% in order to wipe out all capital gains from homeowners who bought a house in July 2020.
- Home equity loan and HELOC rates are expected to fluctuate in the short to medium term.
Another week, another increase in the average home equity line of credit (HELOC) rate, which has risen 57 basis points over the past two weeks.
The average home equity loan rate rose slightly after remaining flat last week.
Rates on home equity are rising alongside increases in short-term rates by the Federal Reserve. In its continued attempt to calm inflation, the Fed raised its federal funds rate, most recently by 75 basis points in November.
These increases could have the desired effect. The consumer price index showed inflation at 7.7% year-on-year in October, below expectations after months above 8%. However, it is too early to tell if this will last.
While rising interest rates could push the economy into a recession, homeowners still have high levels of workable home equity, keeping foreclosures below pre-pandemic levels.
Despite a recent decline, home values are expected to weather the headwind of a cooling housing market. “For the average national homeowner who bought a home in July 2020, house prices would need to drop 27% to wipe out all of their capital gains through appreciation,” according to a recent report from First American Financial Corporation, a real estate services company. .
Typically, home equity loan and HELOC rates tend to move in tandem with prime mortgage rates, Cook says.
“Many economists expect rates to stabilize, and if we were to enter a recession, rates could start to slowly decline,” says Rob Cook, vice president of marketing, digital and analytics. for Discover Home Loans. “Given all the uncertainty, however, owners should generally expect rates to remain high in the short to medium term.”
The average rate for a $30,000 HELOC is 7.89%, up 19 basis points week over week.
Here are the average home equity loan and HELOC rates as of November 16, 2022:
|TYPE OF LOAN||RATE FOR THIS WEEK||LAST WEEK RATE||DIFFERENCE|
|10-year $30,000 home equity loan||7.57%||7.57%||nothing|
|Home equity loan of $30,000 over 15 years||7.50%||7.49%||+0.01|
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?
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 your mortgage as collateral. As a result, you can usually get a more competitive rate with home equity financing than with, say, a personal loan or cash refinance.
Here’s how the two products work:
Similar to a personal loan, a home equity loan allows you a single collection that you will pay over a fixed period. The fixed rate associated with home equity loans makes them attractive, especially in a rising rate environment.
HELOC, which offer borrowers a revolving line of credit, are popular for the flexibility they offer homeowners. During the draw period, you often only pay interest on what you actually used. However, HELOCs tend to have variable interest rates, which means your monthly payment is likely to change as rates go up.
Before borrowing with a home equity loan or HELOC, be sure to shop around to see who can offer you the most competitive interest rate.
What consumers need to know about home equity financing
Recent rate movements reflect the uncertainty surrounding inflation. Although the Fed is poised to slow the pace of its rate hikes, we are likely to see higher rates for longer.
“I encourage consumers to do their homework to understand the impact of current rates on their budget and financial situation,” Cook says.
If you already have a home equity loan, rate increases will not affect your monthly payments. But this is not the case for HELOCs. When borrowing with a HELOC, pay attention to changing rates so you can keep an eye on your shipping costs.
How to get home equity financing
To borrow with a home equity loan or HELOC, you will first need to complete an application with the lender of your choice. Your loan amount and interest rate will be determined based on your application.
Remember that the average rate may not be the rate you qualify for. You may end up with an interest rate above or below the average. That’s why it’s a good idea to shop around to see who can give you the best deal.
How to Use Home Equity
The most common uses for home equity loans and HELOCs are debt consolidation and home improvement projects. However, consumers can tap into the equity in their property for a number of reasons, whether it’s paying for college, a car, or a second home.
“We’re seeing strong demand for home equity loans because they offer homeowners a way to use the available equity in their homes at lower rates than alternatives,” Cook says.
Overall, experts caution against treating your home equity like an ATM. Your home is your greatest asset and resource. Any decision to exploit its own funds must be taken seriously.
Home equity loans and HELOCs can be great financial tools, if you have a clear purpose for borrowing and a comfortable repayment strategy.