The pricing of a second mortgage differs from that of a primary mortgage. Rather than following the yields on long-term Treasury securities, most HELOCs track the prime rate plus a lender margin. As of early June, the prime rate is 6.75 percent. An illustrative margin of 0.75 percent would result in a 7.50 percent adjustable HELOC rate. According to the Federal Reserve, adjustments to the prime rate typically move in lockstep with shifts to the federal funds rate, influencing how quickly HELOC rates can rise or fall.
Lender flexibility and borrower variability
Second-mortgage products allow considerable discretion in pricing. Published averages may include introductory promotions that last six or 12 months before resetting to the fully indexed rate. While some lenders cite rates just under 6 percent for borrowers with exceptional credit, others post offers approaching 18 percent for applicants with weaker profiles or higher CLTVs. Consequently, the spread between the least and most expensive HELOCs remains wide, reinforcing the importance of comparing multiple quotes.
Home equity loans, by contrast, generally lack teaser rates. The fixed rate established at closing stays in place for the entire repayment term, eliminating the uncertainty associated with future rate adjustments. For that reason, HELs appeal to borrowers who prefer budget stability and who need a single lump-sum disbursement rather than the revolving access characteristic of a HELOC.
Key features driving lender selection
Industry specialists point to several variables that frequently influence the choice of provider. Low or waived origination fees, the option to lock in a portion of a variable-rate balance at a fixed rate, and generous maximum credit limits all play a role. Truist’s package meets each of those benchmarks: besides offering high limits and multipart draw features, its fixed-rate conversion program enables borrowers to split balances into as many as five different fixed-rate segments, each with its own term.
Other large banks and regional lenders have introduced similar programs, but the details vary. Some institutions cap fixed-rate conversions at lower dollar amounts, while others restrict the number of terms available. Borrowers who anticipate frequent balance fluctuations—such as those funding home renovations in stages—often favor lenders that grant more flexible conversion policies.
Illustrative repayment scenarios
A line of credit is structured with two distinct periods: a draw phase, commonly 10 years, followed by a repayment phase that can last up to 20 years. During the draw period, borrowers may pay only the interest due. For example, withdrawing the full $50,000 on a 7.25 percent line generates an estimated monthly interest payment of about $302. When the repayment period begins, the unpaid principal amortizes over the remaining term, and payments typically rise. Because the rate is variable, any increase in the prime rate would lift the required monthly amount.
In effect, a HELOC functions like a 30-year loan if balances remain outstanding from the first day of the draw until the final month of repayment. Financial planners often note that the product may be most economical when used for shorter-term financing needs, where the borrower draws and repays funds quickly, limiting exposure to future rate changes.
Market outlook and borrower considerations
With primary mortgage rates holding roughly three percentage points below the current average HELOC cost, homeowners face a trade-off: retain an ultra-low first-mortgage rate and add a higher-rate second lien, or refinance the entire balance into one new loan at today’s higher rates. For many, the former route remains preferable, particularly when the intended equity withdrawal is modest relative to the outstanding first-mortgage principal.
Given the wide rate dispersion across lenders, prospective borrowers may benefit from reviewing rate sheets, fee schedules, and conversion policies side by side. Applicants should also verify whether quoted HELOC rates include limited-time introductory discounts and clarify how frequently the variable rate can adjust once the promotional term ends.
Although average home equity borrowing costs have edged lower from their March highs, they remain above the 7 percent threshold. Any future movement will depend in part on monetary policy decisions and corresponding shifts in benchmark indexes. Until then, lenders such as Truist that combine large credit-line capacities with multiple payment options continue to attract attention from homeowners looking to leverage their growing property values while preserving low first-mortgage rates.
