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The average rate on a 10-year HELOC (home equity line of credit) hit a new high of 6.20%, according to Bankrate.com. Meanwhile, the rate on a 20-year HELOC is 7.19%, down 9 basis points 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
What are the current HELOC rates?
10-year HELOC rate
This week, the average interest rate on a 10-year HELOC is 6.20%, a slight jump from the previous week, when it was 6.11% and 2.55%, the lowest of the past year.
At the current interest rate, a $25,000 10-year HELOC would cost about $129 per month during the 10-year draw period.
This is followed by the repayment period, when interest and principal must be paid. Home equity margins come with variable interest rates, so your rate may increase during the years of repayment. The term of a HELOC is the same as its repayment period, so a 10-year home equity line of credit gives the borrower 10 years to pay off the loan.
Borrowers generally only pay interest during the drawdown period. However, some borrowers may also choose to always repay the principal amount.
20-year HELOC rate
The average interest rate on a 20-year HELOC is 7.19%, down slightly from 7.28% last week. This week’s rate is above the 52-week low of 5.14%.
At the current interest rate of 7.19%, a $25,000 20-year HELOC would cost about $150 per month during the draw period.
How do I qualify for a HELOC?
If you already have a mortgage, some of the requirements for getting a HELOC will probably be familiar to you. As a rule of thumb, owners 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. Some of the specifics may vary from lender to lender.
Also, lenders usually require an appraisal to determine the home’s value, which in turn determines the homeowner’s equity.
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.
Currently, the 52-week high on a 10-year HELOC is 6.20%, while the 52-week low is 2.55%. The 52-week high on a 20-year HELOC is 7.51% and the 52-week low is 5.14%.
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 repay it 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.
Frequently Asked Questions (FAQ)
Is HELOC interest tax deductible?
Yes, if you itemize deductions, interest charges may be deductible if you use HELOC funds to pay for home improvements.
Will taking out a HELOC impact my credit rating?
Lenders will perform a credit check when you apply for a HELOC, as with any credit product, and it will temporarily lower your credit score. But if you make timely repayments, your credit score will recover quickly.
It’s important to keep in mind that any HELOC is secured by your home, like a mortgage. This means that failure to make timely repayments could put you at risk of losing the property.
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.