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A home equity line of credit (HELOC) is a revolving loan that allows homeowners to use the equity in their home as collateral.
The average rate on a 10-year HELOC is 3.99% and the average rate on a 20-year HELOC is 5.14%, according to Bankrate.
Related: Best home equity lenders
10-year HELOC rate
The average interest rate on a 10-year HELOC is 3.99%, the same as last week. This week’s rate is above the 52-week low of 2.55%.
At the current interest rate of 3.99%, a $25,000 10-year HELOC would cost about $83 per month during the draw period. You would pay approximately $252 per month in principal and interest over the 10-year repayment period.
20-year HELOC rate
The average interest rate on a 20-year HELOC is 5.14%, down from 5.81% last week. This week’s rate is above the 52-week low of 5.03%.
At the current interest rate of 5.14%, a $25,000 20-year HELOC would cost about $107 per month during the draw period. You would pay approximately $166 in principal and interest during the repayment period.
HELOCs vs home equity loans
While both tap into the equity in your home, there are some differences between HELOCs and home equity loans.
A HELOC is a loan secured by your home or other property. It allows you to withdraw money as you need it and only pay interest on what you borrow during the drawdown period (often 10 years). You repay the entire balance plus interest during the repayment period (usually 20 years). Home equity loans are similar to HELOCs, but require homeowners to take all of their funds at once and pay off the balance with fixed monthly payments.
HELOCs have variable interest rates, while home equity loans have fixed rates. This can make a home equity loan a better option if you have a large project and need one-time financing.
HELOC Rate Information
With the Federal Reserve raising interest rates, borrowers could see HELOC rates rise this year. Typically, HELOC rates move in step with interest rate increases by the Fed.
The current 10-year average HELOC rate is 3.99%, 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 5.14%, the low of 52 is 5.03% and the high is 6.16%.
How do I qualify for a HELOC?
HELOC qualifications can be a bit stricter than initial mortgages, and each lender may have different requirements that depend on your creditworthiness and home equity. As a basic guide, homeowners generally need a maximum debt-to-income ratio (DTI) of 43%, a minimum credit score of 620, a history of on-time mortgage payments, and at least 15% to 20% equity in the house. .
To determine the owner’s equity in the property, lenders will require an appraisal. This serves as a trusted third-party assessment of the home’s value.
Frequently Asked Questions (FAQ)
Why can I use a HELOC?
Although many borrowers use them for repairs or upgrades, HELOCs do not need to be used for home-related purchases. You can also use them for education costs or major purchases. Remember that the money you borrow is subject to a variable interest rate that may increase over time. This may mean that there are better ways to finance certain things, such as student loans with fixed interest rates.
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.
What are the alternatives to HELOCs?
Home equity loans are another way to leverage the equity in your home. They are subscribed for a fixed amount and repaid regularly, 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 in cash.