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A home equity loan is a type of second mortgage that lets you borrow against your home's value. It's a fixed-rate loan that you repay over an agreed-upon period. See average home equity loan rates from national and regional lenders.
What is the current interest rate on a home equity loan?
The above drop-down table (select "Home Equity Loan Rate Averages") provides average interest rates quoted by five national and regional home equity lenders, according to NerdWallet's rate survey, which is conducted every two weeks.
The rate averages are computed for home equity loans with five-year, 10-year and 15-year terms. (The term is how long you have to pay off the loan in equal monthly payments.) The rate survey assumes a borrower has a high credit score, has $200,000 in equity on a single-family house worth $400,000, and wants to borrow $75,000.
To shop for individual lenders’ rates and terms, start by checking out NerdWallet’s summary of the best home equity loan lenders.
How do you get a good home equity loan rate?
Your credit score is a major factor influencing your mortgage interest rate. You're more likely to be approved for a home equity loan with a credit score of 700 or higher. The lowest rates tend to go to borrowers with credit scores of 740 or higher.
Interest rates also vary by loan term.
Mortgages with longer terms tend to have higher interest rates. That's the case with home equity loans, too. In NerdWallet's survey of home equity loans, the average rate on loans with 15-year terms is usually higher than on loans with 10-year terms, which usually have higher rates than loans with five-year terms. This isn't an ironclad rule, though. Sometimes, some lenders charge lower rates for loans with longer terms. That's why it pays to shop around for a home equity loan.
Some lenders will give a discount on a home equity loan's interest rate if you have another account with the bank.
Are home equity loan rates higher than mortgage rates?
Interest rates on home equity loans are usually higher than interest rates on primary mortgages because they carry more risk for the lender.
If you end up in foreclosure, the home will be sold and the primary mortgage will be paid off first from the proceeds of the sale. The home equity lender will be paid only if there's money left over after the primary mortgage has been paid in full. There's a risk that the home equity lender won't be repaid in full, and a higher interest rate compensates for that risk.
Other options to tap your home's equity
There are two other ways to borrow from your home's equity without selling it: a home equity line of credit and a cash-out refinance.
A home equity line of credit, or HELOC, is a variable-rate credit line, similar to a credit card. You may borrow against your equity, up to a limit. When you repay all or some of it, you may borrow again, up to the credit limit. You pay interest only on the amount you borrow. Usually, the initial interest rates on HELOCs are lower than for home equity loans. But HELOCs have variable rates, which may rise or fall periodically, while home equity loans have fixed rates. See the pros and cons of home equity loans versus HELOCs.
A cash-out refinance replaces your current home loan with a new mortgage for more than you owe, and you take the difference in cash. See the pros and cons of a home equity loan versus a cash-out refinance.