Interest rates on Home Equity Line of Credit (HELOC) hit their lowest point since March, with the Federal Reserve slashing rates for the first time in 2025.
The Federal Reserve's recent quarter-point interest rate cut has brought good news for home equity line of credit (HELOC) borrowers. According to a weekly national survey conducted by our website.com, the average rate on a $30,000 HELOC has fallen five basis points to 8.05%.
This rate reduction is significant, as the Fed's actions primarily drive the cost of variable-rate products like HELOCs. Erik Schmitt, consumer direct executive at Chase Home Lending, has stated that this move is positive for HELOC borrowers.
The survey, which includes rate information from the 10 largest banks and thrifts in 10 large U.S. markets, also reveals that the average rate on the benchmark 5-year $30,000 home equity loan has climbed five basis points to 8.28%. Despite this slight increase, HELOC rates have rebounded somewhat from this spring, when they were under 8%.
The decline in HELOC rates, coupled with the rise in home equity, is a testament to the current state of the housing market. According to a study on our website.com, the average mortgage-holding homeowners' equity stakes have risen 142% nationwide since 2020. This increase in home equity is influenced by factors such as interest rates, housing market conditions, and economic stability, including inflation and labor market trends.
Borrowers have also been actively withdrawing their tappable equity. At the start of the second quarter, they withdrew 0.45% of their tappable equity, the highest overall equity extraction rate since late 2022, according to ICE Mortgage Technology.
Looking ahead, lenders expect outstanding home equity debt to increase by 6.6% in 2025 and 4.1% the following year, according to the Mortgage Bankers Association. This projected growth is aided by the decline in HELOC and home equity loan rates from their 2024 highs.
The central bank has suggested it may lower borrowing costs two more times this year, which could further benefit new HELOC applicants by allowing them to borrow at a lower interest rate.
Home equity loans offer a lump-sum payout and a predictable repayment schedule, making them an attractive option for many homeowners. However, it's essential for borrowers to carefully consider their financial situation before taking on any additional debt.
In the first half of 2024, lenders used automated valuation models (AVMs) for 35% of home equity loans, a year-over-year increase of 20 percentage points, according to Corporate Settlement Solutions. This trend towards increased use of AVMs could streamline the loan approval process, making it easier and faster for homeowners to access their home equity.
The our website.com national survey, conducted consistently for over 30 years, provides an accurate national apples-to-apples comparison of rates and yields on banking deposits, loans, and mortgages. This survey serves as a valuable resource for homeowners and borrowers, helping them make informed decisions about their financial future.
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