In a significant development for homeowners, the rates for Home Equity Lines of Credit (HELOCs) and home equity loans have reached their lowest levels since late 2022. This favorable shift is primarily attributed to a decrease in the prime interest rate, which dictates the pricing of these financial instruments. For individuals holding substantial equity in their homes, this presents an opportune moment to explore options for accessing that capital through second mortgages, offering a viable alternative to traditional refinancing or selling their property.
These financial products, unlike primary mortgage rates, are less susceptible to the fluctuations of the bond market. Instead, their pricing is closely tied to the prime rate. The recent reduction in this rate has made borrowing against home equity more attractive. As of January 21, 2026, the national average HELOC rate stands at 7.25%, while the average home equity loan rate is 7.56%, as reported by Curinos. These rates are based on specific criteria, including a minimum credit score of 780 and a maximum combined loan-to-value ratio (CLTV) of 70%.
The Federal Reserve's latest estimates indicate that homeowners possess an impressive $34 trillion in home equity as of the third quarter of 2025, a figure just shy of a record high. Given that many homeowners currently benefit from historically low primary mortgage rates, they are understandably reluctant to refinance or sell their homes. In this scenario, a second mortgage, such as a HELOC or a home equity loan, emerges as a strategic solution for tapping into this accumulated wealth without disrupting existing mortgage agreements.
It's crucial for prospective borrowers to understand the nuances between HELOCs and home equity loans. A HELOC typically involves a variable interest rate, which may include an introductory 'teaser' rate for a limited period, after which it adjusts. For example, a lender might offer an initial rate of 5.99% for 12 months, which then converts to a variable rate of 7.25%. In contrast, home equity loans offer a fixed interest rate for the entire repayment term, providing stability and predictability in monthly payments.
When considering these options, consumers are advised to thoroughly compare offers from various lenders. Factors such as credit score, existing debt, and the loan-to-value ratio will influence the final rate offered. While introductory HELOC rates can seem appealing, it's vital to assess the long-term variable rate and repayment structure. For home equity loans, the fixed rate simplifies financial planning, as the interest remains constant throughout the loan's duration.
The decision to pursue a HELOC or home equity loan now could be particularly advantageous. Homeowners can leverage their equity for various purposes, including home improvements, repairs, or other significant expenses, all while preserving their current favorable primary mortgage rates. However, it's essential to meticulously review fees and repayment terms to ensure the chosen option aligns with individual financial goals and capabilities. For instance, a $50,000 HELOC at a 7.50% interest rate could result in a monthly payment of approximately $313 during the 10-year draw period, but this payment could increase if the variable rate rises over the 20-year repayment period.