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Home Equity Rates Highest In 5 Years

The Federal Reserve's string of interest rate hikes is making it much more expensive for consumers to borrow against their homes.

The interest rate banks and other financial institutions charge on home equity lines of credit jumped to an average of 8.2 percent after the Fed in late June voted to raise short-term interest rates for the 17th consecutive time, according to That's up from 8.01 percent a week earlier and the highest reading since 8.25 percent in March 2001.

Greg McBride, a senior financial analyst with, which is headquartered in North Palm Beach, Fla., said that "what you're seeing is the rates on lines of credit paralleling the moves by the Fed."

A year ago, home equity lines of credit carried an average rate of 6.38 percent, while two years ago they were priced at 4.83 percent, he said.

McBride said consumers faced with the higher rates have several alternatives: They can pay down the lines of credit or shift to fixed-rate home equity loans, which now are carrying an average rate of 7.8 percent.

"The third alternative is a cash-out mortgage refinancing," he said. "If you have a low, fixed-rate mortgage that's not a wise strategy. But if you're in the market to refinance an adjustable-rate mortgage anyway, you could knock out the line of credit, too."

Still, he noted, the home equity lines of credit have a certain attractiveness even as rates rise.

The lines of credit can work as an emergency fund "because you can borrow more if you need it," McBride said. He noted that because lines of credit have variable rates, the rate will fall when the Fed eventually starts lowering rates.