If you’re not able to move to a new home or refinance to take advantage of the equity you have built up in your home, you’re likely considering a home equity loan or a home equity line of credit. But besides interest rates, how do you choose between a HELOC or a home equity loan?
HELOC and home equity loan rates: Tuesday, September 22, 2026
The average HELOC adjustable rate is 7.09%, a new 2026 low, according to real estate data analytics company Curinos.
The national average rate on a fixed-rate home equity loan is 7.42%, up from its 2026 low of 7.31% in late June.
Both rates are based on applicants with a minimum credit score of 780 and a maximum combined loan-to-value ratio (CLTV) of less than 70%.
How do HELOC interest rates work?
Most HELOCs are variable-rate products, meaning their interest rates are tied to an external interest rate. When that rate rises or falls, the rate on your HELOC generally follows suit.
HELOCs are typically tied to the prime rate, the baseline rate banks currently charge their most creditworthy customers.
The best HELOC lenders will assess the risk any borrower presents and add a margin to protect themselves. Riskier borrowers will have larger margins, while those considered less risky will receive smaller ones. Factors such as your credit score, debt-to-income ratio (DTI), and loan-to-value ratio (LTV) will all be considered in this assessment.
How do home equity loan interest rates work?
A home equity loan and its interest rate work like a HELOC in some ways and like a traditional primary mortgage in others.
As with a HELOC, the prime rate usually impacts your home equity loan rates, and home equity loan lenders incorporate a margin into your rate. Both HELOC and home equity loan rates are loosely influenced by the Federal Reserve’s federal funds rate and broader economic conditions.
However, like many first mortgages, home equity loans are typically fixed-rate products, meaning you’ll have the same interest rate for the entire term. Fixed-rate HELOCs exist, but they’re much less common.
How to qualify for a HELOC or home equity loan
Specific loan requirements vary by lender, but generally, home equity loans and HELOCs require a borrower to:
- Have a FICO credit score of 680 or higher
- Show a history of good credit and proof of sufficient monthly income
- Obtain an appraisal to determine the current market value of the home
- Have at least 15% to 20% equity in the house
- Have a debt-to-income ratio of 43% or less
- Show proof of in-force homeowners insurance
Lenders may charge origination fees and other closing costs on a HELOC or home equity loan. When shopping for yours, make sure to ask about all possible application fees, annual charges, early account closure fees, and other one-time or ongoing expenses. Shop multiple lenders to find the lowest interest rate and the fewest fees.
The qualification requirements for both are very similar. Lenders generally require a FICO credit score of 680 or higher, a debt-to-income (DTI) ratio under 43%, proof of income, and at least 15% to 20% equity in your home. However, because HELOCs carry variable interest rates and potential payment changes down the road, some lenders may apply slightly stricter income-stress tests during the application process.
Yes, many lenders offer a fixed-rate conversion option on HELOCs. This allows you to lock in a fixed interest rate on all or a portion of your drawn balance during the draw period, protecting that amount from rising market rates while keeping the rest of your credit line flexible.
When your draw period (typically 5 to 10 years) ends, you enter the repayment period (usually 10 to 20 years). You can no longer withdraw funds, and your monthly payment will jump from interest-only to principal plus interest. This transition can lead to “payment shock,” so it is important to plan ahead or make principal payments early during the draw period.
Under current IRS guidelines, interest paid on both HELOCs and Home Equity Loans may be tax-deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. If you use the money to pay off credit card debt or fund a vacation, the interest is generally not tax-deductible. Always consult a tax professional for guidance on your specific situation.
Home Equity Loans: Expect standard upfront closing costs (typically 2% to 5% of the total loan amount), including appraisal, title, and origination fees.
HELOCs: Lenders often offer low or waived upfront closing costs, but you should check for ongoing costs like annual maintenance fees, inactivity fees, or early closure penalties if you close the account within 2 to 3 years.
Manoj Sharma is a Senior Writer on the banking team at Tax Assistant. He provides information on budgeting, bank accounts, the banking industry, and other related topics. Using original data and methodologies, he helps you identify the best financial institutions, accounts, and products tailored to your needs. Manoj holds a degree in Journalism and Political Science from Syracuse University. All articles are strictly reviewed and fact-checked by our panel of expert Chartered Accountants, including CA Devendra Saini, CA Nikhil Khunteta, and CA Ankit Goyal
