HELOC and home equity loan interest rates: How they work and what you can expect to pay

Core Insights - Home equity loans and HELOCs allow homeowners to access home equity for cash, but they differ significantly in interest rates and structures [1] Group 1: HELOC Rates - HELOCs are typically variable-rate products influenced by external interest rates, primarily the prime rate [2] - Lenders assess borrower risk and add a margin to the base rate, with riskier borrowers facing higher margins [3] - An example illustrates that a borrower with good credit may receive a starting rate of 5.5%, while a riskier borrower could see rates as high as 7% or 8% [4] Group 2: Home Equity Loan Rates - Home equity loans are generally fixed-rate products, meaning the interest rate remains constant throughout the loan term [5] - Similar to HELOCs, home equity loan rates are influenced by the prime rate and include a margin, but they tend to be higher than primary mortgage rates [6] - As of publication, a home equity loan rate is noted at 9.375% for a 10-year term compared to a 30-year conventional mortgage rate of 6.375% [7] Group 3: Strategies for Securing Better Rates - Improving credit scores above 700 can help secure lower interest rates, as lenders favor borrowers with high credit scores [8] - Reducing debt and increasing income can lower the debt-to-income ratio, making applications more appealing to lenders [9] - Strategies include borrowing less, shopping around for lenders, and considering shorter loan terms to achieve better rates [13]