Are home equity loan interest rates generally higher or lower than first mortgage interest rates?

Home equity loan interest rates are generally lower than first mortgage interest rates. This is primarily due to the nature of the loans and their associated risks. A first mortgage is often a larger loan used to purchase a home, secured by the property itself, while a home equity loan is derived from the equity the homeowner has built up in the property. Since homeowners are leveraging the established value of their home, lenders typically offer lower rates on home equity loans compared to the initial mortgage.

Additionally, first mortgages tend to incorporate various costs, including points and origination fees, which can drive up the effective interest rates. Home equity loans, on the other hand, are usually simpler in terms of originations, and therefore the rates can be competitive and lower relative to first mortgages.

This understanding of home equity loans not only reflects current lending practices but also the broader principles of securing loans against collateral, where the equity in the house represents a lower risk for the lender.