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A home equity line of credit, also known as a HELOC, allows homeowners to use the equity in their home.
HELOCs are loans that allow you to borrow against the equity in your home, which is the current market value of your home minus the remaining balance of your mortgage. When you get a HELOC, you can take the available money in installments as needed and pay interest only on what you use.
The average rate on a 10-year HELOC is 4.74%, according to Bankrate.com, while the average rate on a 20-year HELOC is 6.84%.
Related: Best home equity lenders
10-year HELOC rate
The interest rate for a 10-year HELOC averaged 4.74% this week. This is unchanged from last week.
At the current interest rate, a $25,000 10-year HELOC would cost about $99 per month during the 10-year draw period.
After the drawdown period, there is a repayment period during which the interest rate may increase. HELOCs have variable interest rates, unlike home equity loans, which are taken out as a lump sum. They have repayment periods which may be equal to or different from the draw period. Generally, the term of a HELOC is the same as its repayment period – a 10-year HELOC gives you 10 years to pay off 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 6.84%, up slightly from 6.79% last week. This week’s rate is above the 52-week low of 5.14%.
At the current interest rate, a $25,000 20-year HELOC would cost about $143 per month during the draw period.
HELOCs vs home equity loans
HELOCs, like credit cards, are called revolving credit products. It refers to a borrower’s ability to withdraw money, pay it back, and get more out of it. This process can be repeated throughout the life of the line of credit, which in most HELOCs is 10 years.
This makes HELOCs quite different from home equity loans, which require the homeowner to specify a certain lump sum to borrow and then pay it back in regular installments. But home equity loans come with fixed interest rates, while lines of credit have variable rates.
This may make credit lines less attractive now, as the Federal Reserve embarks on a cycle of repeatedly raising interest rates over the coming months and years.
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 since they already know your home and your credit profile.
You can also research rates online to compare lenders with your current mortgage lender before you fully apply 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.
HELOC Rate Information
HELOC rates are more closely tied to banks than prime mortgage rates, which tend to track bond market performance. The Federal Reserve, which controls the interest rates that banks charge themselves, has signaled to investors that it plans to raise the federal funds rate several times in 2022 and beyond.
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 6.84%, the low of 52 is 5.14% and the highest is 7.14%.
Frequently Asked Questions (FAQ)
Is HELOC interest tax deductible?
Yes, if you use the proceeds for home improvements, you may be able to deduct the cost of interest if you itemize your deductions.
Will taking out a HELOC impact my credit rating?
As with any credit product, the credit check performed by lenders will temporarily lower your credit score. But as long as you pay off your debts on time, you can recover quickly from that first hit.
It’s also important to note that because a HELOC is secured by your home, failing to pay it off in a timely manner could put you at risk of losing the home in addition to damaging your credit score.
What are the alternatives to HELOCs?
Home equity loans allow you to leverage the equity in your property for cash. Loans, unlike lines of credit, are taken out for a fixed amount and repaid regularly with a fixed interest rate.