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 1, 2026
The average HELOC adjustable rate is 7.16%, a new 2026 low, according to real estate data analytics company Curinos.
The national average rate on a fixed-rate home equity loan is 7.35%, up slightly 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.
Yes, many lenders allow you to convert all or part of your variable-rate HELOC balance into a fixed-rate option during the draw period. Alternatively, you can refinance an existing HELOC into a new fixed-rate home equity loan or primary mortgage, though this requires going through the underwriting process and paying closing costs again.
HELOCs generally carry lower upfront closing costs than home equity loans, and some lenders even offer no-closing-cost HELOC promotions. However, HELOCs may include ongoing maintenance fees, annual fees, or early cancellation penalties. Home equity loans typically incur traditional closing costs (1% to 5% of the total loan amount) upfront.
Interest on both products is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan (under IRS guidelines). If you use the money to consolidate credit card debt, pay tuition, or fund personal expenses, the interest is not tax-deductible.
If local real estate values decline significantly and your overall home equity drops below the lender’s required threshold, the lender reserves the right to freeze or reduce your HELOC credit limit. With a fixed-rate home equity loan, your existing payout and repayment terms remain unchanged regardless of market fluctuations.
Both options initially cause a minor credit score dip due to the lender’s hard credit inquiry. Over time, a HELOC functions like revolving credit (similar to a credit card), so carrying a high balance relative to your credit limit can impact your credit utilization ratio. A home equity loan acts as installment debt, which can improve your credit mix as long as you make on-time payments.
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
