Home equity loan rates drop again. Is it better than a HELOC now?
Interest rates on home equity loans are on the decline once again. After falling for much of 2024 but then ticking up again in the early months of 2025, the average home equity loan interest rate declined again this week, according to Bankrate data. Now at an average of 8.38%, home equity loan rates dropped two basis points, week-over-week.
And while a decline from 8.40% to 8.38% may not seem like a lot, it underlines the cost-effectiveness of a home equity loan now. It was only in the early parts of 2024, for example, when average rates here were over 9%. So a more than half a percentage point difference adds up to significant savings if secured now, particularly when stretched over the common 10- or 15-year repayment period.
But is a home equity loan better than its home equity line of credit (HELOC) counterpart right now? HELOC rates, for example, are lower, averaging 8.00% currently. Still, that difference in rates isn't the only thing to consider now. Below, we'll break down why, despite the rate differential, a home equity loan could still be better than a HELOC if applied for now.
Start by seeing what home equity loan rate you could lock in here.
Is a home equity loan better than a HELOC now?
This week, HELOC rates ticked up and home equity loan rates ticked down, leaving prospective borrowers wondering if a home equity loan is their better borrowing choice. And while each homeowner's individual financial circumstances and goals differ, there's a compelling case to be made that a home equity loan is indeed the better way to borrow home equity now.
For starters, rates on both products are relatively close. There's not such a huge discrepancy between the two to make HELOCs the superior (and cheaper option). And since rates on both are impacted by the same primary factors, HELOC and home equity loan rates are unlikely to change dramatically to alter this dynamic. But there is an important distinction between how the rates are structured. Home equity loan rates are fixed, while HELOC rates are variable and subject to change each month for borrowers. So, in a consistently cooling rate climate, HELOCs are generally preferable. And this has been clear in recent months as rates there fell to 18-month and two-year lows, respectively.
But is that the same climate right now? The economy is constantly changing. Stock market uncertainty and other factors, however, could make a variable-rate product simply too risky for homeowners now. For these borrowers, a fixed-rate home equity loan, even at the slightly higher rate, will make sense. This will both ensure that their payment will remain the same until the loan is paid off (or until it's refinanced) and it will allow for precise budgeting, which is vital in today's economy and is something that a HELOC, by definition, can't allow for.
There's also no way to predict when, exactly, interest rates could rise again. Last week, for example, HELOC rates were averaging 7.90%. This week? They're back up to 8%. Who knows where they could be in another week from now, let alone by the summer. This volatility, then, will need to be priced in by borrowers before getting started. Failure to repay a HELOC (or home equity loan) could lead to the home being foreclosed.
So it's critical that your repayments are calculated with precision. And since that's difficult to do with a HELOC and since an affordable payment now could quickly become cost-prohibitive thanks to economic factors out of your control, yes, a home equity loan for many could be better than a HELOC now.
Compare your home equity loan and HELOC offers here to learn more.
The bottom line
There is no definitive answer to which is better right now: a HELOC or a home equity loan. For some, a HELOC is the obvious choice thanks to its lower interest rate. Other homeowners, however, may find a home equity loan to be preferential, thanks to a similarly low rate that will remain fixed in the face of economic changes and a still hard-to-predict rate climate. Whichever option you ultimately choose, however, just be sure to borrow only an amount that you can comfortably repay. Overborrowing could lead to foreclosure, putting you in a worse financial position than you initially started.
