KATY, Texas (Covering Katy News) — With home equity loan rates averaging around 8% nationally, Texas homeowners are exploring options to tap into their property's value for renovations, debt consolidation and major expenses.
The national average home equity loan interest rate is 8.02% as of Nov. 5, according to a survey from Bankrate of the nation's largest home equity lenders. The average represents the lowest level since early 2023.
The decline follows the Federal Reserve's interest rate cuts for the second meeting in a row.
Understanding Home Equity Loans
A home equity loan allows homeowners to borrow against the equity built in their property. Home equity represents the difference between a home's current market value and the remaining mortgage balance.
Unlike home equity lines of credit, or HELOCs, home equity loan interest rates are fixed. Once borrowers close their loan, the rate remains the same whether market rates rise or fall unless they refinance.
Most lenders allow borrowers to access up to 85% of their home's value minus what they owe on their mortgage.
“We’ve seen an increase in interest for both home equity loans and HELOCs since summer,” said Yolanda Martinez, Branch Manager for Advancial Federal Credit Union’s Katy branch. “Most of our members have been utilizing these loans to consolidate debt and to perform home improvements instead of buying a new home.”
Local Credit Union Offerings
Advancial Federal Credit Union, which has branches in Katy and Sugar Land, offers home equity loans with flexible terms ranging from three to 15 years. Advancial's home equity loan rates start at 6.13% for a three-year term and range up to 7.55% for a 15-year term, according to the institution's current rate schedule.
For example, a $50,000 home equity loan over 10 years at 7.37% APR would result in a monthly payment of approximately $590.12, according to Advancial's payment calculator.
Advancial also provides home equity lines of credit with rates as low as 7.50% through Dec. 31. After that date, rates will be based on the Wall Street Journal prime rate plus 2.5% or 3.5%, depending on the borrower's credit history.
“One thing that stands out about our home equity loans are our rates,” said Martinez. Since we’re a credit union, we able to offer rates lower than the national average, which helps our members save more money.”
Common Uses for Home Equity Loans
Homeowners typically use home equity loans for:
Home renovations and improvements. Debt consolidation from credit cards or other high-interest loans. Major purchases such as vehicles. Education expenses. Emergency expenses.
If homeowners use home equity loan funds for IRS-eligible home repairs and renovations, they may be able to deduct the interest they paid from their taxes.
Rate Outlook
Home equity loan rates have trended downward since the Federal Reserve's Dec. 19, 2024 , rate cut. LendingTree however, cautions against expecting dramatic decreases.
“It really depends on the Fed,” said Martinez when asked about the future of rates. “If they continue to cut rates, then we’ll continue to see rates decreasing for consumers as well.”
Qualifying for a Home Equity Loan
Lenders typically evaluate several factors when approving home equity loans:
- Credit score and history
- Current debt-to-income ratio
- Combined loan-to-value ratio
- Property value
- Employment and income verification
Most lenders require credit scores of at least 620, though borrowers may face higher rates or reduced borrowing limits with lower scores.
Risks to Consider
Borrowers should understand that home equity loans use their property as collateral. Failure to make payments could result in foreclosure.
Additionally, taking out a home equity loan reduces available equity in the property, which could impact proceeds if the home is sold before the loan is repaid.
Financial experts recommend that homeowners carefully evaluate their ability to manage an additional monthly payment before taking out a home equity loan.
When asked about advice for Katy homeowners considering a home equity loan or HELOC right now, Martinez said, “Look at all of your options and only go with what you’re comfortable with. Whether that’s a variable rate that allows flexibility to pay interest for only a few years or a fixed rate that’s longer but won’t change over time. Be sure you have enough equity in your home for this loan to make sense. If you aren’t sure, we’re always here to help.”
For more information on home equity loan options, Texas homeowners can contact local lenders or credit unions, like Advancial, to discuss their specific financial situations and borrowing needs.
Advancial Federal Credit Union is a Covering Katy News subject matter expert, recognized as a trusted authority on banking and credit union topics. Businesses interested in Subject Matter Expert positioning can contact Dennis Spellman at Dennis@CoveringKaty.com.