What to expect with home equity loan rates

Home equity loan rates will vary dramatically depending on the type of home equity loan you choose. You have two options. You can have either a fixed home equity loan or a home equity credit line.

If you choose a fixed home equity loan you can expect home equity rates ranging from 1% to 8% higher than a 30 year fixed interest rate. This will obviously be determined by your credit score as well as the repayment term of the loan. Also the more equity you borrow the higher your interest rate will be.

If you choose an equity credit line your home equity loan rates can be anywhere from 2% below a 30 year fixed interest rate up to 5% above a 30 year fixed interest rate.  The interest rates are on a sliding scale. For example let’s assume you have excellent credit:

A line of credit to 80% of the value of your home you might pay prime interest rate only.

A line of credit to 85% of the value of your home you might pay prime plus 4%.

A line of credit to 90% of the value of your home you might pay prime plus 7%.

A line of credit to 95% of the value of your home you might pay prime plus 8%

A line of credit to 100% of the value of your home you might pay prime plus 10%.

An option to look for when shopping for home equity loan rates would be a conversion option. The conversion option allows the variable interest rate to be converted at some point during the loan to a fixed interest rate. 

Also be aware that many home equity loan rates start off with an introductory or teaser rate. These rates are often much lower than what you will be paying over the life of the loan. Make sure and ask how long the teaser rate lasts and what the actual rate will be after the introductory period is over.