No, a HELOC rate is often higher than a first mortgage rate because it’s usually a second lien and often variable.
You’re probably here for one reason: you want the cheaper debt. A HELOC can feel like a “low-rate” option, then the quotes come back higher than expected. A mortgage quote can look lower, then closing costs make you pause. Let’s sort it out with plain comparisons you can use while shopping.
How HELOC Interest Is Usually Set
A HELOC is a revolving credit line secured by your home. Many HELOCs use a variable rate. Lenders often build that rate from an index plus a lender margin. The index is commonly tied to the U.S. bank prime rate, and the margin is the lender’s add-on based on your profile and the deal structure.
The Federal Reserve explains that the prime rate is set by banks and is used as a reference rate for many loans. Many HELOC contracts read like “Prime + X%,” with X set by the lender.
The CFPB’s official HELOC booklet shows where to find the index, the margin, rate caps, fees, and draw rules in your disclosures: What You Should Know About HELOCs.
Why HELOC payments can change
With a variable rate, your interest cost can rise when the index rises. Some plans allow interest-only payments during the draw period, then switch to principal-and-interest during repayment. That combo can produce a payment jump even if your balance stays steady.
How Mortgage Rates Are Usually Set
A first mortgage is priced on longer-term market yields plus borrower risk and product features. With a fixed-rate mortgage, you’re buying a steady rate for the term, often 15 or 30 years. With an adjustable-rate mortgage, you trade some stability for a rate that can reset on a schedule.
For a public benchmark, Freddie Mac publishes weekly averages for popular mortgage products through its Primary Mortgage Market Survey. You can check the latest figures on the Freddie Mac PMMS page. Your personal quote can differ based on credit, points, and lender pricing.
Are HELOC Interest Rates Lower Than Mortgage Rates? What Usually Happens
Most of the time, a HELOC rate runs higher than a first mortgage rate. One big reason is lien position. A HELOC is commonly a second mortgage, also called a junior lien, when there’s already a first mortgage on the home. The CFPB explains what a junior-lien loan is and how it sits behind the first mortgage.
In a forced sale, the first lien gets paid first. The second lien is next in line. That extra risk usually pushes HELOC pricing up. Add the variable rate feature on many lines, and the “typical” outcome is simple: the HELOC starts higher or becomes higher over time.
Exceptions exist. Some lenders offer short intro rates on HELOCs. Some mortgage products, like certain ARMs, can land near HELOC pricing. The winning option depends on your payoff plan and total fees, not just the headline rate.
What Drives The Gap Between HELOC And Mortgage Rates
The gap comes from three levers: lien priority, rate structure, and how fees show up in your total cost.
Lien priority
First mortgages sit at the front of the line for repayment. Second liens sit behind. Lenders price for that risk.
Rate structure
Fixed mortgages hold steady. Many HELOCs reset with the index. When rates rise, the HELOC can follow quickly.
Fees and “effective cost”
A HELOC can carry annual fees, appraisal charges, minimum draw rules, or early-closure fees. A mortgage can carry points and closing costs. If you compare only the rate, you miss the cash cost that can outweigh a small rate difference.
Use this table as your side-by-side lens while you shop.
| Factor | First mortgage (common patterns) | HELOC (common patterns) |
|---|---|---|
| Lien position | First lien; paid first in a forced sale | Often second lien; paid after the first |
| Rate style | Often fixed; ARMs exist | Often variable; some offer a fixed lock option |
| How the rate is built | Pricing from market yields plus borrower factors | Index (often prime) plus lender margin |
| What moves the rate | Fixed: stays flat; ARM: resets on schedule | Index resets can change rate during the line |
| How you get cash | One-time lump sum at closing | Borrow, repay, borrow again during draw |
| Early payment pattern | Principal + interest from day one | Some plans allow interest-only during draw |
| Later payment pattern | Steady if fixed; changes if ARM | Often jumps at repayment start |
| Fee traps to watch | Points, lender fees, title, escrow, prepaid items | Annual fee, early close fee, appraisal, minimum draw rules |
| Best fit uses | Long payback goals, refinance, purchase | Shorter projects, staged spending, flexible access |
When A HELOC Can Make Sense Even With A Higher Rate
A HELOC can still be the cheaper move in dollars when the balance is small, the payoff is fast, and fees are light.
Small balance, short payoff
If you plan to repay in months, a HELOC with low fees can cost less than a refinance with heavy closing costs, even when the HELOC rate is higher. The breakeven point is all about time.
Staged spending
For a renovation that happens in phases, a HELOC lets you borrow as bills arrive. You can keep the balance lower than a lump-sum loan that starts charging interest on day one.
When A Mortgage Rate Usually Wins
If you expect to carry the debt for years, rate stability often matters more than flexibility.
Long payback plans
A fixed mortgage can shield you from index jumps. That can protect your budget when rates move upward.
One-loan simplicity
Some borrowers want one payment and one amortization schedule. A cash-out refinance can be simpler than managing a first mortgage plus a line, even if the line starts out cheaper.
How To Compare Offers Without Getting Tripped Up
When you’re shopping, the cleanest comparison uses the same horizon and the same payoff plan for each option.
Ask for both the note rate and the APR
The note rate drives your monthly interest. The APR rolls in some fees. It’s a fast way to spot a “low rate” offer that hides costs elsewhere.
Write down the index, margin, and caps
For a HELOC, the index tells you what can move. The margin tells you the lender add-on. Caps limit how far the rate can move at a reset and over the life of the line. The CFPB booklet explains where those terms appear in disclosures.
Price the line at the fully indexed rate
If there’s an intro rate, also ask what the rate is after the intro ends. Use that rate for your main comparison, then treat the intro as a bonus.
Test your budget at a higher rate
Ask the lender for a payment example at a higher rate and see if it still fits. If it doesn’t, a fixed option may suit your risk tolerance better.
Fee clauses that can change the deal
Two offers can share the same rate formula and still cost different money. Read the fee lines with the same attention you give the rate. A few clauses show up again and again:
- Early-closure fees: some lenders charge if you close the line within a set window.
- Annual or inactivity fees: a small yearly charge can add up if you keep the line open “just in case.”
- Minimum draw rules: you might be required to take an opening advance, even if you wanted a zero-balance line.
- Appraisal and title charges: some lenders waive them, others pass them through.
- Rate floors: some plans won’t fall below a stated minimum even if the index drops.
Ask the lender to put each fee in writing and tell you when it applies. If you’re comparing two HELOCs, this is often where the winner shows up.
| Situation | What tends to happen | A safer comparison move |
|---|---|---|
| HELOC has an intro rate | Rate resets higher after the promo window | Compare using the fully indexed rate (index + margin) |
| Mortgage quote uses points | Lower note rate, higher upfront cost | Compare total cost for the time you’ll hold the loan |
| Interest-only draw is allowed | Payment looks low early, then jumps later | Compare against the amortizing payment in repayment |
| You plan to sell soon | Upfront fees can dominate the math | Lean toward lower fees and a fast payoff path |
| You want a steady payment | Variable rates can shift the budget | Use a fixed-rate option as your baseline |
Questions To Ask Before You Sign
These questions get you past marketing language and into the contract terms that shape cost.
- Is the line a second lien behind my current mortgage?
- What index do you use, and how often can the rate reset?
- What margin applies to my tier, and can it change later?
- What are the periodic and lifetime caps?
- Are there annual fees, minimum draws, or early-closure fees?
- What happens to payments when the draw period ends?
- Can you show a payment example at a higher rate?
A One-Page Rule Set For Most Borrowers
- If you want stable payments for many years, start with a fixed first mortgage quote.
- If you want flexible access and plan to repay fast, price a low-fee HELOC and compare total dollars.
- If you’re torn, compare three offers side by side: fixed mortgage, HELOC, and fixed home equity loan.
Rates can end up close. Your payoff timeline and your fee load are the tie-breakers.
References & Sources
- Federal Reserve.“What is the prime rate, and does the Federal Reserve set the prime rate?”Defines the prime rate and explains how banks set it as a reference for many loans.
- Consumer Financial Protection Bureau (CFPB).“What You Should Know About Home Equity Lines of Credit (HELOC).”Explains HELOC structures, variable-rate disclosures, fees, draw rules, and borrower rights.
- Freddie Mac.“Primary Mortgage Market Survey (PMMS).”Publishes weekly benchmark averages for common mortgage products used for rate context.
- Consumer Financial Protection Bureau (CFPB).“What is a second mortgage loan or junior-lien?”Describes junior liens and clarifies how second mortgages relate to existing first mortgages.