The best home equity loan rates: September 2023 (2024)

Interest rates aren’t set in stone. They fluctuate often based on the economy, market conditions, and monetary policy, which means the cost of borrowing money can change, too.

Home equity loan rates, for example, have been rising in recent months, and borrowing against your home is now quite a bit more expensive than it was just a year ago.

The best home equity loan rates

At the beginning of 2022, the average rate on a home equity loan was just above 6%, according to Bankrate. By the end of the year it had crept up near 8% and as of September 6, 2023 sits at 8.61%. Much of the upward movement has been propelled by the Federal Reserve, which has raised interest rates nine times since March 2022 in an effort to tame inflation. Even though the Fed doesn’t set rates on products like consumer loans, its actions influence them — and the higher the federal fund rate goes, the more banks charge you to borrow, too.

The Fed has suggested that the string of hikes will soon end for this inflation cycle, but there’s another hitch for would-be borrowers: One of the reasons the Fed thinks it can safely ease up the gas on interest rates is the looming threat of a credit crunch — that is, when it becomes harder to get a loan in the first place. The Fed expects tightening credit conditions amid banking instability, in the wake of the collapse of Silicon Valley Bank.

However, all is not doom and gloom. Home equity itself is at record highs, and homeowners are tapping into it at an unprecedented pace. Even with rates going up, home equity loans still tend to have lower rates than other types of borrowing, such as personal loans and balances on credit cards — so in the right circ*mstances, taking out a home equity loan can still be a smart money move.

And fortunately, not every borrower will get a sky-high rate on these kinds of loans. Are you considering using a home equity loan for cash? Here’s what current home equity loan rates look like — and what they might mean for your borrowing options.

Current home equity loan rates

Thanks to policy changes from the Federal Reserve, home equity loan rates — as well as rates on other mortgage products — have spiked in recent months. They’re now notably higher than those seen in the first quarter of 2022 and, according to some, could keep rising.

“Like most consumer loan products, interest rates for home equity lines of credit and home equity loans are trending upward,” says Zeenat Sidi, president of digital products and services at loanDepot. “Some economists predict a 2% increase on equity rates by the beginning of 2023.”

To be clear: The exact interest rate you’ll get on a home equity loan varies based on your lender, credit score, loan amount, loan term and how much equity you have in your home. In August, most home equity loan rates ranged between 7.97% and 9.84%, according to Bankrate.

What’s a home equity loan?

Home equity loans are a type of second mortgage that let you turn your home equity — or the portion of the home you actually own — into cash.

Here’s an example: If your home is worth $500,000 and you have a current mortgage balance of $200,000, then you have $300,000 in equity. With a home equity loan, you could borrow against that equity and get a lump payment in return.

Many people use home equity loans to cover the costs of repairs or renovations, to pay for things like medical bills or sudden expenses, or to consolidate debt. This is often smart if you have lots of credit card debt since credit cards tend to have much higher interest rates than home equity loans do.

Home equity loans also have fixed interest rates — meaning they’re consistent over time. Credit card and HELOC rates fluctuate, on the other hand, making it difficult to stay on top of payments and pay off your debt in full.

Differences between home equity loans and HELOCs

Home equity loans are just one option if you want to turn your home equity into cash. Home equity lines of credit, also called HELOCs, are another.

“With a HELOC, you may withdraw money as needed,” Sidi says. “It's a revolving line of credit, similar to a credit card, but at a much lower variable interest rate, allowing you to borrow what you need, repay it, and then borrow again during the specified draw period.”

Sidi’s right: HELOC interest rates are typically lower than home equity loans, but only at the start. After a few years (typically three, five, or seven), the interest rate will increase or decrease based on the index it’s tied to. This means that your HELOC rates could potentially increase over time, sending your monthly payments upwards too.

Still, if you have the funds to manage potentially higher payments, HELOCs can be a good idea — especially if you’re not sure how much to borrow (like for ongoing renovations) or if you need cash over an extended period of time.

“You only pay interest on the amount borrowed and are given flexible payments,” says Diane Mastay, mortgage director at Tropical Financial Credit Union. “Borrow only when and how much is needed.”

Not sure if a HELOC or home equity loan is right for your needs? Here’s a look at the pros and cons of both home equity options:

How rising mortgage rates affect home equity loans

Home equity loan fixed rates usually trend in the same direction as traditional mortgage rates. The one difference is that home equity rates are often slightly higher. This is because they’re a kind of second mortgage and are considered riskier for the lender.

Mortgage rates, home equity loan rates, and HELOC rates have largely risen in the second half of 2022 thanks to the Federal Reserve, which has increased its benchmark rate several times to fight inflation. When these rate hikes occur, it becomes more expensive for banks to borrow money. They then pass those higher costs onto borrowers via higher interest rates.

“As the Fed continues to hike its rate while trying to stifle inflation, rate are driven upwards across the board,” Sidi says.

Unfortunately, borrowers can’t do much to change Fed policy or what the going interest rates are. You can, however, work on your credit score, which directly impacts the interest rate a lender will give you. Banks typically reserve the best home equity loan rates for borrowers with scores of 740 or higher.

If your credit score isn’t quite that high yet, there are things you can do to help improve it. To start with, pay down your credit card balances, dispute errors on your credit report, and make sure you pay your bills on time. These steps can all increase your score and help you qualify for a lower interest rate.

Home Equity Loan FAQs

How can I get a home equity loan?

Once you’re approved for a home equity loan, your lender gives you the funds as an upfront lump sum. This makes home equity loans ideal for homeowners who want to borrow a specific amount for a major project or big one-time expense. To repay the loan, you make fixed monthly payments (with interest, of course) over a set term ranging from five to 30 years.TIP: Remember that home equity loan payments are in addition to your usual mortgage payments, so budget accordingly. If you default on the loan payments, your lender can foreclose on your home.

What is a home improvement loan?

A home improvement loan is an unsecured loan that you can use to pay for various home repairs and renovations — such as a roof replacement, furnace/HVAC repairs, kitchen or bathroom remodel, deck addition, solar panel installation or landscaping. Loan amounts range from $3,000 to $100,000, which you repay with interest in monthly installments over one to five years.

How can I increase my home’s value?

If you’re researching home equity loans and HELOCs, you’ve probably started wondering how you can increase your home’s value. Check out our guide for tips, including investing in smart energy, replacing your roof, and refinishing hardwood floors.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Jill Slattery, who serves as VP of Content for the Hearst E-Commerce team. Email her at jill.slattery@hearst.com.