Home Equity Loan Rates and How to Get the Best Deal

Story by Aly J. Yale for Wall Street Journal

Home-equity loans and home equity lines of credit—typically called Helocs—have been in high demand in recent years. 

These allow you to borrow against your house, turning your ownership stake into cold, hard cash, which you can then use to cover home repairs or renovations, consolidate debts or pay for virtually any expense you can think of.

According to data from analytics firm Black Knight, the typical homeowner has about $200,000 in equity they could access through a home-equity loan or Heloc. And per a survey from TD Bank, more than half of homeowners are considering one of these loans in the next year.

Should you, too? That likely depends on what interest rate you can get—and how that compares to other home equity products such as Helocs and cash-out refinancing. Here’s what you need to know about home-equity loan rates to make the right decision. 

What’s next for home-equity loan rates?

Where home-equity loan rates head next depends on inflation—and how the Fed reacts to it. The central bank’s most recent projections indicate there could be three rate cuts on its agenda this year. Should that happen, home-equity loan rates will likely follow suit.

The timing of those moves is uncertain, though. Fed Chairman Jerome Powell recently said rate cuts are unlikely at its upcoming March meeting, and the CME Group FedWatch Tool, which uses futures pricing data to gauge expected Fed policy moves, suggests a cut won’t come in May either. 

“Hopes of the first Fed funds rate cut happening in March have pulled back,“ says Kenon Chen, head of strategy at property valuation technology firm Clear Capital. “But it still remains likely that we will see rate cuts later this year.”

Though it may be a while before those lower rates hit, Chen says it’s still a good time to get a home equity loan—especially with rates on first mortgages high. Over 90% of homeowners have a current mortgage rate below 6%, making refinancing or buying a new home—thereby trading up for a higher rate—unattractive. 

“Current homeowners may want to tap into their equity to make improvements in place rather than move,” Chen says. “Home equity loans provide funding for that without them letting go of their low mortgage rate.” 

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