Bad Credit Home Equity Loan Rates Hit 10.75%, Highest Since 2008
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
home-equity-loansubprime-borrowing
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Average home equity loan rates for borrowers with credit scores below 620 reached 10.75% this week, according to data from a major lending index. This marks the highest average rate for this credit tier since November 2008. The surge reflects a rapid repricing of risk by lenders as home price appreciation slows and delinquency rates creep higher. Finance Yahoo reported on May 29th that originations for these loans have declined 22% year-over-year. Lenders are tightening standards and increasing pricing to compensate for higher perceived risk in the consumer credit market.
The last time subprime home equity rates exceeded 10% was during the global financial crisis, when they peaked at 11.25% in late 2008. The current macro backdrop features a Fed funds rate of 5.33% and 10-year Treasury yields hovering near 4.5%. The catalyst for this repricing is a dual pressure from slowing home price growth and rising consumer delinquencies. The S&P/Case-Shiller U.S. National Home Price Index recorded its smallest quarterly gain in three years, up just 0.8% in Q1 2026. Simultaneously, the Federal Reserve Bank of New York reported that delinquency rates on all household debt increased to 3.2% in Q1 2026, the third consecutive quarterly rise.
The average rate for a borrower with a 619 FICO score is now 10.75%, a 175 basis point increase from the 9.00% average recorded in May 2025. This rate is 625 basis points above the current average for a prime borrower with a 740+ score, which sits at 4.50%. The average loan-to-value ratio offered for these loans has tightened to 75%, down from 80% a year ago. Origination volume for subprime home equity products fell to $4.8 billion in Q1 2026, a 22% decline from the $6.15 billion originated in Q1 2025. For context, the SPDR S&P Homebuilders ETF (XHB) is down 8% year-to-date, underperforming the S&P 500's 4% gain.
| Metric | May 2025 | May 2026 | Change |
|---|---|---|---|
| Avg. Subprime HELOC Rate | 9.00% | 10.75% | +175 bps |
| Avg. LTV Offered | 80% | 75% | -5 pp |
This repricing directly pressures consumer discretionary spending, potentially affecting retailers like Home Depot [HD] and Lowe's [LOW], which benefit from home improvement projects funded by equity extraction. Tighter credit availability could remove an estimated $15 billion in annual consumer spending power from the economy. A key counter-argument is that overall household equity remains near record highs at over $18 trillion, providing a substantial buffer for the broader market. The risk is concentrated in specific geographic and demographic cohorts. Hedge funds are reportedly increasing short positions in consumer finance lenders with high subprime exposure, while flows into money market funds continue to accelerate as retail investors seek safety and yield.
The next major catalyst is the May Consumer Price Index report scheduled for release on June 12th. A hotter-than-expected print could push Treasury yields higher and further widen the spread between prime and subprime loan rates. The next Fed meeting on June 18th will also be critical for the direction of short-term rates that influence HELOC pricing. Key levels to watch include the 5.0% yield on the 2-year Treasury note; a break above could trigger another wave of lending repricing. The Q2 2026 Senior Loan Officer Opinion Survey, due July 15th, will provide the next read on how much further banks intend to tighten credit standards.
Most lenders designate a FICO score below 620 as subprime for home equity products. This threshold has remained consistent, but the risk premium charged above prime rates has expanded significantly. Borrowers in this range now face rates that are often more than double those offered to consumers with excellent credit, reflecting a much higher cost of capital for lenders.
A new home equity loan application typically triggers a hard inquiry, which can temporarily lower a credit score by 5-10 points. Once the loan is opened, the addition of a new installment loan and an increase in overall debt utilization can cause a further dip. However, consistent on-time payments will positively contribute to payment history, the most important factor in score calculations, potentially helping to rebuild a poor score over a 12-18 month period.
It is exceedingly difficult to secure a traditional home equity loan with a credit score of 500. Most major banks and credit unions have a firm minimum requirement of 620. Some specialized non-bank lenders may offer products to borrowers in the 500-619 range, but these often come with maximum loan-to-value ratios as low as 50-60% and APRs that can exceed 15%, making them prohibitively expensive for most homeowners.
Subprime home equity borrowing costs have hit a 18-year high as lenders aggressively price for rising consumer credit risk.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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