HELOC rates vs. mortgage rates: What’s cheaper in 2022?

Peter Warden
Peter Warden
The Mortgage Reports Editor
July 26, 2022 - 5 min read

Are today’s HELOC rates worth it?

HELOC rates tend to be a little higher than mortgage rates. So why are more and more homeowners opting for a HELOC over a cash-out refinance?

One reason is that a HELOC lets you borrow just the amount of home equity you need. You don’t have to refinance — and pay interest on — your entire mortgage.

A HELOC also provides an ongoing line of credit that you can draw on as needed. And, unlike a cash-out refinance, they are relatively cheap to set up. So a HELOC often costs less than a cash-out mortgage when all’s said and done.

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What are current HELOC rates?

Much like mortgage rates, HELOC rates have been very volatile recently. On July 13, 2022, Nasdaq reported that the average interest rate for a 10-year HELOC was at a 52-week high of 5.51% and a 52-week low of 2.55 percent. For a 20-year HELOC, the 52-week high was 7.46% and the 52-week low was 5.14 percent.

Meanwhile, 30-year fixed mortgage rates were at a 52-week high of 5.81% and a 52-week low of 2.65% — closely mirroring the range on a 10-year HELOC.

52-Week High52-Week Low
10-Year HELOC5.51%2.55%
20-Year HELOC7.46%5.14%
30-Year Fixed Mortgage5.81%2.65%

Sources: Nasdaq (HELOC rates), Freddie Mac (30-year fixed mortgage rates)

None of this is surprising. Pretty much all interest rates soared during the first half of 2022. And HELOC rates did, too.

You may be able to get lower rates than those for a 20-year HELOC by choosing a cash-out refinance or a home equity loan. But refinances usually come with higher closing costs.

Meanwhile, a HELOC typically has a significantly lower interest rate than other forms of borrowing, such as personal loans and credit cards. Rates on plastic could be twice as high. So if you want a line of credit you can borrow from and repay at a low rate, a HELOC might be the answer.

How HELOC interest rates work

HELOC rates work a little differently than standard mortgage rates.

Most cash-out refinances involve a new, 30-year fixed-rate mortgage. Similarly, nearly all home equity loans have fixed interest rates. By contrast, HELOCs are usually variable-rate loans, meaning your interest rate can rise and fall over time with the market.

HELOCs are usually variable-rate loans, meaning your interest rate can rise and fall over time with the market.

Another major difference is that, during the HELOC “draw period,” interest is charged only on your loan balance (the amount of your credit limit you’ve used). By contrast, mortgage interest rates are always charged on the full loan amount. That means HELOC payments are typically much lower than mortgage payments.

Some lenders do offer fixed-rate HELOCs or allow you to fix the rate on a particular outstanding balance part way through the loan. You may also be able to convert your HELOC into a home equity loan. However, lenders typically charge a higher rate on these types of HELOCs because they are shouldering more of the risk.

How HELOC rates and payments are structured

HELOCs are structured in two parts. They have a “draw period” and a “repayment period.”

During the draw period, you can borrow from and repay your HELOC as often as you want up to your credit limit. And you pay interest only on the outstanding loan balance. In other words, you’re not obliged to repay any part of the principal during your draw period, though you can do so if you choose.

The length of the HELOC draw period can vary. Common options include five, 10, 15, or 20 years. When the draw period ends, the repayment period begins. And that often lasts for five or 10 years.

During the repayment period, your HELOC effectively becomes an installment loan. So you can’t borrow any more. And your monthly payments are fully “amortized,” meaning your loan will be totally paid off at the end of the repayment period.

HELOC rates vs. mortgage rates

Typically, mortgage rates are substantially lower than HELOC rates. That’s because HELOCs are considered riskier for mortgage lenders. A HELOC is a “second mortgage” or “second lien” — meaning in the event of a foreclosure, the main mortgage lender gets paid first and the HELOC lender could potentially be paid less or not at all. And lenders charge more to compensate for that risk.

But those relationships can change during unusual interest rate markets. For instance, in mid-2022, there were 10-year HELOC rates close to — or even a little lower than — 30-year fixed mortgage rates.

That is partly because 10-year HELOCs have variable interest rates and shorter loan terms. That relieves lenders of much of the risk if rates continue to rise.

Is a HELOC or a mortgage cheaper?

With mortgage and HELOC rates where they are, a HELOC may well be a good option right now. That’s especially true because HELOCs tend to have lower closing costs than a cash-out refinance.

Keep in mind that closing costs are partly based on the size of your loan. With a HELOC that loan amount is just your credit limit. With a cash-out refinance, that’s your entire existing mortgage balance plus the lump sum you borrow.

But here’s the real question you should ask: Is a HELOC or a mortgage cheaper for you? Because the cost of each will vary hugely depending on things like your credit score, debt-to-income ratio, and the amount of equity you want to borrow. There is no one-size-fits-all answer.

Mortgage and HELOC rates will also vary enormously by lender. Some offer low rates and high closing costs while others have higher rates and lower closing costs.

There are no shortcuts here. Your best bet is to check in with a mortgage lender and get rate quotes on both a HELOC and a cash-out refinance. Your loan officer will help you decide which loan type makes the most sense in your financial situation.

How to find your best HELOC rate

Just like mortgage shopping, the only way to find your lowest HELOC rate is to get quotes from multiple lenders and compare their offers. Look for not only the lowest rate, but the best combination of interest rate and upfront fees.

We’d recommend getting HELOC quotes from at least three to five lenders, including your existing bank, your existing mortgage lender, and a variety of other sources like online lenders and credit unions. You can also check out lenders recommended by family, friends, and colleagues.

If you want the best possible HELOC rate, it also helps to do a financial checkup before you apply. Remember that lenders give the lowest rates to borrowers with good credit and low debt levels. In particular, try to:

You may not have the time or ability to do any or all of those. But, if you can, you might see worthwhile savings on the HELOC rates and closing costs you’re offered.

Your next steps

HELOC rates are generally higher than mortgage rates. But you only have to pay interest on what you borrow — meaning HELOC payments are often much lower than mortgage payments. So there are pros and cons to both options.

Check in with a lender to learn what HELOC rate you qualify for today.