What's a good home equity loan interest rate?
While incomes are generally on the rise in the U.S., many Americans are struggling to keep pace with high inflation rates. Try as you might, getting the income side of the equation to outweigh the expenses can be challenging.
In addition to trying to manage everyday expenses, like gas and groceries, those with debt may also be struggling to keep up with higher interest rates, which have been rising as the Federal Reserve tries to tamp down inflation. If you carry a credit card balance, for example, paying that off can take longer and get more expensive as interest rates go up.
Or, if you face unexpected expenses, like home repair costs, perhaps you don't have the cash on hand to cover them.
If you're a homeowner facing these types of challenges, one option might be to take out a home equity loan. Especially for those who've enjoyed significant gains in their home equity based on appraised values going up in the pandemic era, taking out a home equity loan could provide the funds you're looking for.
And home equity loans can often be more cost-effective than some other forms of financing, like credit cards or personal loans.
Still, home equity loans have their associated costs, particularly in terms of interest rates. So, it can be helpful to compare rates and get a good sense of the costs before you apply for a home equity loan.
What's a good home equity loan interest rate in 2023?
If you had gotten used to low mortgage rates during 2020 or 2021, for instance, you might be in for a bit of a shock in 2023. Interest rates have generally gone up significantly across the board.
That said, a good home equity loan interest rate is typically in the ballpark of 7% as of March 2023, based on a range of rates from various providers. That's significantly less than the average credit card rate of around 20%, according to CreditCards.com. Personal loan interest rates are also much higher-roughly 11%, based on recent Federal Reserve data.
The actual home equity loan interest rate you can get depends on several factors, such as your loan term, location and credit history. If you have a high credit score, for example, you're more likely to find that rate of around 7%, whereas someone with a lower credit score might pay around 8% or more.
So, if you're considering a home equity loan, you might first evaluate your credit score and see if there's anything you can do to improve that number. You'll also likely want to shop around to see what different lenders can offer you, based on factors like your location and desired loan characteristics. You can easily check your local home equity loan options here now or in the below table.
Home equity loan benefits to know
In addition to having lower rates generally compared with credit cards and personal loans, other popular home equity benefits can include:
- Potential for tax deductions: If you use your home equity loan to make certain home improvements, you may be eligible to deduct interest payments to save money on taxes. "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," explains the IRS.
- Fixed rates: Another potential home equity loan benefit is that this form of financing generally comes with fixed interest rates, in contrast to what's often variable rates for things like credit cards and home equity lines of credit (HELOCs). In some sense, that might help you feel more comfortable taking out a home equity loan, because you know what your interest rate and payments will be for the life of the loan, even if the broader interest rate environment rises.
Keep in mind that despite these possible benefits, taking out a home equity loan isn't always the best choice for everyone, nor is it a decision to take lightly. But if you can inform yourself about the pros and cons of home equity loans, including comparing interest rates, then you can set yourself up to make a better decision.
Other information
Want to learn more about the ins and outs of home equity loans? Check out these articles to boost your home equity loan knowledge:
- What is a home equity loan?
- Should you get a home equity loan now?
- How to use home equity to make home repairs
- 3 reasons to use a home equity loan
- Are home equity loans worth it?
- HELOCs vs. home equity loans: What's the difference?
