HELOC rates are a little higher than current mortgage rates, but despite the recent rise, they could still let a homeowner save money on borrowing for construction costs or consolidating debt when compared to personal loan rates or credit card rates.
Why are the HELOC rates so high?
HELOC rates are so high because the rates for home equity lines of credit change slightly in accordance with the prime rate, which closely follows the federal funds rate that the Federal Reserve has been raising for months to try and control inflation. The HELOC rates are high because the federal funds rate is high, and the prime rate is high, so it's not surprising.
The Fed decided to pause its rate hikes at its most recent meeting in September, and it could maintain rates steady for the rest of the year.
A second mortgage that homeowners can use to finance home improvement projects, debt consolidation, or other financial objectives is known as a home equity line of credit. It's like a credit card, but the money you're borrowing comes from your home's equity.
Insider tracks the best HELOC lenders to make the most out of your home's equity.
In this price range, a HELOC can be worth it if you're looking to capitalize on the value of your home to cover a significant purchase like a home renovation. Over that period, many homeowners had a lot of equity as home prices increased at an unprecedented rate. But since rates are so high, capitalizing on that equity can be expensive.
If you want to tap into your home's equity, a HELOC might be the best option right now - especially considering the rising value of home prices over the past few years. Rates are variable, meaning your monthly payments could go up if rates increase.