Plenty of articles posted after the housing crash as to the reason Wells and chase pulled out of the HELOC market. They simply are too risky for the banks, fears of a housing bubble, and too much negative press (that could cause downward pressure on the companies stocks).
While home loan interest rates overall have risen dramatically since 2022, HELOC rates still tend to be lower than those on credit cards and personal loans. If you qualify for the best rates, a HELOC can be a less expensive way to consolidate debt or finance a home renovation.
HELOCs often offer lower interest rates than credit cards, unsecured personal loans and personal lines of credit. Rates may continue dropping in 2025. HELOCs tend to have variable interest rates that automatically change based on the prime rate. In turn, that rate tends to move with the federal funds rate.
If the market has taken a downturn and the value of your house has diminished, your equity is affected as well. When this happens, your lender can enforce a HELOC reduction so that your borrowing limit is based on just the equity that remains.
If you've built up enough equity in the property since you bought it and the value has increased, then selling shouldn't be too difficult – as long as you can make up any difference between what's owed on the HELOC and what your house sells for.
Is it a bad time to get a HELOC? No. In fact, it could be a very good time. While HELOC rates are higher than they used to be, they are at historically normal levels.
Since the end of September, HELOCs have been trading below 9 percent and, along with home equity loans, they're forecast to retreat further in 2024. At its Dec. 17-18 meeting, the Federal Reserve slashed interest rates by a quarter point, its third consecutive rate cut since September 2024.
Bankrate Chief Financial Analyst Greg McBride, CFA, forecasts that HELOC rates will continue to decline in 2025, averaging 7.25 percent, their lowest level in three years.
HELOCs in particular can be a trap. “Many homeowners find it difficult to stay disciplined in paying down the principal on their line of credit,” Bellas says. During the initial draw period, “most HELOCs only require you to pay down the interest every month, similar to how a credit card has a minimum payment.
What is the monthly payment on a $50,000 HELOC? Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $372 for an interest-only payment, or $448 for a principle-and-interest payment.
Typically, HELOCs will have lower interest rates and greater payment flexibility, but if you need all the money at once, a home equity loan is better.
Why HELOCs Can Be A Risky Loan Option. A HELOC allows you to borrow against the equity you've built in your home, which can feel like an easy windfall—but don't be fooled; it's far from free money. Taking out a HELOC means you're actually taking on more debt, and if you can't pay it back, you risk losing your home.
JPMorgan Chase Bank N.A. does not offer Home Equity Loans nor Home Equity Lines of Credit (HELOC) at this time. Please visit our HELOC page for future updates. Any information described in this article may vary by lender.
Equity is the value of your home minus the amount you owe on your mortgage. Consider a HELOC if you are confident you can keep up with the loan payments. If you fall behind or can't repay the loan on schedule, you could lose your home.
HELOC payment examples
For example, payments on a $100,000 HELOC with a 6% annual percentage rate (APR) may cost around $500 a month during a 10-year draw period when only interest payments are required. That jumps to approximately $1,110 a month when the 10-year repayment period begins.
If you take out a $50,000 home equity loan, you will receive all of the money at once and pay interest on the full amount. With a HELOC, you can withdraw money whenever you need it.
You can pay off your HELOC early, but be mindful of pre-payment fees, if any. If you have a Citizens HELOC, you're in luck as Citizens does not charge pre-payment fees. HELOCs allow you to make interest-only payments during the draw period, then transition to principal and interest payments during the repayment period.
Key Takeaways
HELOCs usually have two stages: a draw period and a repayment period. If your home value drops significantly, your lender might limit or freeze your credit line.
While not at pre-pandemic levels, interest rates on home equity loans and HELOCs are slowly improving. The average home equity loan interest rate is currently 8.41%, while the average HELOC interest rate is 8.52% (as of December 19, 2024). Still, the only economic constant is change.
These credit lines gained popularity in the 1980s due to high home appreciation and tax reform initiatives, but the Great Recession and housing crisis of the mid-2000s caused HELOCs to no longer be offered by big banks because home equity was difficult to determine.
Home equity lines of credit typically have variable interest rates tied to the prime rate, which rises and falls with the federal funds rate. When the Fed makes rate cuts, it eventually trickles down to lower rates on existing HELOCs and those being offered by lenders.
The average home equity loan interest rate (as of January 8, 2025) is 8.43% and slightly higher for different repayment periods (8.55% for a 10-year one and 8.49% for a 15-year repayment period). So if you can get a rate under any of those three, you can consider it a "good" one right now.