Current Home Equity Loan Rates Explained

Home equity loan rates can be a mystery to many, but understanding them is crucial to making informed decisions about borrowing against your home's value.

Typically, home equity loan rates are variable, meaning they can change over time.

Many lenders offer fixed rates for a specified period, often 5 or 10 years, before reverting to a variable rate.

For example, a 5-year fixed rate might be 4.5%, while the variable rate after that could be 6.5%.

The interest rate you qualify for depends on your credit score, loan amount, and other factors.

Homeowners with excellent credit scores (700+ FICO) may qualify for lower rates, such as 4.25%.

Those with lower credit scores may face higher rates, like 6.25%.

A home equity loan is a type of consumer debt that allows homeowners to borrow against the equity in their homes. The loan amount is based on the difference between the home's current market value and the homeowner's mortgage balance due.

Home equity loans tend to be fixed-rate, while home equity lines of credit (HELOCs) generally have variable rates. Home equity loans are also known as equity loans, home equity installment loans, or second mortgages.

You can borrow a fixed amount secured by the equity in your home and receive your money in one lump sum with a home equity loan. Interest on a home equity loan may be tax deductible under certain circumstances, so it's a good idea to consult your tax advisor.

Discover offers home equity loan and mortgage refinance products but does not offer HELOCs.

As of January 1, 2025, the current average home equity loan interest rate is 8.41 percent, with an average rate range of 8.08% to 9.49%. This rate applies to a $30,000 loan with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

Home equity lines of credit (HELOCs) have lower starting interest rates than home equity loans, although the rates are variable. As of January 1, 2025, the current average HELOC interest rate is 8.36 percent, with an average rate range of 7.84% to 10.22%.

The Federal Reserve's interest rate decisions influence the rates you pay for variable-rate home equity lines of credit (HELOCs) and new home equity loans. In 2023, the Fed raised the federal funds rate 11 times, driving a sharp rise in home equity products' rates.

The current average home equity loan interest rate in the five largest U.S. markets is 8.41 percent. Boston has the lowest average rate at 8.08%, while New York Metro has the highest at 9.49%.

Here are the current average home equity loan rates by market:

Similarly, the current average HELOC interest rate in the 10 largest U.S. markets is 8.36 percent. Boston has the lowest average rate at 7.88%, while New York Metro has the highest at 10.22%.

Here are the current average HELOC rates by market:

A home equity loan's interest rate is fixed, which means you'll know exactly how much you'll pay each month. This fixed rate is included in the annual percentage rate (APR), which also covers interest and other credit costs.

The APR is a key factor in determining your monthly payments, and it's always a good idea to review your loan documents to understand how the APR will affect your payments.

A good rate on a home equity loan or HELOC is generally considered to be lower than the national average. The national average home equity loan interest rate is 8.41 percent, while the national average HELOC interest rate is 8.36 percent.

To give you a better idea, here are some average rates by market: Boston has an average home equity loan rate of 8.08 percent, while Chicago has an average rate of 9.04 percent. For HELOCs, Boston's average rate is 7.88 percent, while New York Metro's average rate is 10.22 percent.

A good rate can also depend on your credit score and other factors. Generally, lenders reserve their best rates for borrowers with higher credit scores and a lower loan-to-value ratio. For example, some lenders may offer a lower rate if you set up automatic payments or withdrawals.

The Fed plays a significant role in determining interest rates, particularly for variable-rate home equity lines of credit (HELOCs) and new home equity loans.

The Federal Reserve raised the federal funds rate 11 times from early 2022 through mid-2023, causing home equity product rates to skyrocket.

In November 2023, HELOC rates topped 10 percent, the highest rate in 20 years.

The Fed kept the fed funds rate unchanged throughout 2024, which led to a calming of home equity product rates.

The central bank finally lowered the federal funds rate by half of a percentage point in September 2024.

HELOC rates responded by declining to 52-week lows.

The cost of borrowing against one's ownership stake has gotten a little cheaper, and declines may continue into 2025.

Home equity loans come in various terms to suit different needs. You can choose from 10, 15, 20, or 30-year fixed rate options.

The term length you select will directly impact your monthly payments. For example, a 10-year fixed rate loan will have higher monthly payments compared to a 30-year fixed rate loan.

Here are the available term length options:

Loan amounts range from $35,000 to $300,000, offering flexibility to borrowers with varying needs.

There are several types of equity loans, each with its own unique characteristics.

A home equity loan is a lump sum loan that allows homeowners to borrow a portion of their home's equity.

Home equity lines of credit (HELOCs) work similarly, but instead of a lump sum, homeowners can borrow and repay funds as needed.

A second mortgage is another type of equity loan that allows homeowners to borrow money using the equity in their home as collateral.

Home equity loans and HELOCs are often confused with each other, but they serve different purposes.

You can have both a HELOC and a home equity loan at the same time, provided you have enough equity in your home, as well as the income and credit to get approved for both.

Having both types of loans can be beneficial if you need access to a large sum of money for a big project, like home renovations or paying off high-interest debt.

A HELOC loan doesn't exist, it's a combination of a home equity line of credit (HELOC) and a home equity loan.

This means you can use the home equity loan for a lump sum and the HELOC for ongoing expenses or emergencies.

No Fees is a significant aspect to consider when exploring equity loan options. No application fee means you won't have to pay a fee just to apply for the loan.

One of the most notable advantages of equity loans is the absence of pre-payment penalties. This means you can pay off the loan at any time without incurring extra charges.

Having no annual fee ensures that you won't be charged extra for the privilege of borrowing money from the lender. This can be a significant cost savings over the life of the loan.

You can tap the equity you've built with a home equity loan product, but lenders usually require at least 20 percent equity, which is an LTV ratio of 80 percent.

To calculate your LTV ratio, divide your outstanding mortgage balance by your home's appraised value. This will give you a percentage that shows how much equity you've built.

Home values play a big role in how quickly you gain or lose equity. If home values rise, you can build equity faster.

Tap into your home equity with a low fixed-rate loan option. You can build equity faster when home values rise, but be aware that a market downturn can lead to losing equity and becoming "underwater" on your mortgage.

To qualify for a home equity loan, you typically need at least 20 percent equity in your home, which translates to an LTV ratio of 80 percent. This means your outstanding mortgage balance should be 80 percent or less of your home's appraised value.

Home equity loan rates vary by term length, with options ranging from 10 to 30 years. For example, a 30-year fixed-rate loan may have an APR of x.xx% - xx.xx%.

Here are some key terms to consider when exploring home equity loan options:

Some home equity loan providers offer loan amounts ranging from $35,000 to $300,000, with fixed monthly payments and no application, origination, appraisal, or closing fees.

Home equity loans offer a number of benefits, including low-interest rates and possible tax deductions.

If you have a steady income and can repay the loan, a home equity loan can be a sensible choice. This is because the interest rate is lower than that of credit cards and other consumer loans.

The interest rate on a home equity loan is much lower than that of credit cards, which is a primary reason consumers borrow against their home's value. This helps explain why people use home equity loans to pay off credit card balances.

Home equity loans are generally a good choice for larger goals, such as remodeling or paying for education, because the funds are received in one lump sum.

To get approved for a home equity loan, you'll generally need to have equity in your home greater than 20% of its value, a verifiable income history for two or more years, and a credit score greater than 600.

Meeting these requirements will typically get you a lower interest rate, but it's not the only factor that lenders consider. Expect to pay a much higher interest rate if you don't meet these requirements, even if you can get approved.

You can determine your current equity percentage by dividing the current balance of all loans on your property by your estimated property value. Recent home sales in your area or online estimates like Zillow or Redfin can help you estimate your home's current value.

Here's a rough guide to average home equity interest rates:

These rates assume a loan amount of $25,000 and a loan-to-value ratio of 80%, and HELOC rates assume the interest rate during credit line initiation, after which rates can change based on market conditions.