Home Equity Rates Tumble One Week After Fed Cut

Image by GettyImages; Illustration by Bankrate

A sharp pullback in home equity rates, one week after the Fed’s highly anticipated quarter-point rate cut. The $30,000 home equity line of credit tumbled 17 basis points to 7.88 percent, its lowest level in about a year-and-a-half, according to Bankrate’s national survey of lenders. The benchmark 5-year $30,000 home equity loan dropped to a new low, falling 9 basis points, to 8.19 percent.

And the downward trajectory in home equity rates may not stop there. “Based on industry talk, I see the Fed reducing rates again slightly by the end of 2025 and hopefully by another point by the end of 2026, which means that HELOC and HE Loan interest rates will follow suit,” says Sarah Rose, senior home equity manager at Affinity Federal Credit Union. “This is a positive for borrowers who are looking to access the equity in their home. Lower interest rates mean lower payments, and lower payments make it easier for borrowers to qualify.”

What’s driving home equity rates today?

Both HELOC and home equity loan rates have declined substantially from their 2024 highs and are near their lows of the year. Rates are being driven primarily by two factors — the first one is the Federal Reserve’s actions. In particular, the Fed impacts the cost of variable-rate products, like HELOCs. After cutting rates by a quarter point at its September meeting, the central bank suggested it may lower borrowing costs two more times this year.

“Homeowners considering a HELOC should be prepared for their rate to change shortly after each Fed decision,” says Stephen Kates, senior analyst at Bankrate. “Those considering a fixed-rate loan, on the other hand, should monitor rate trends closely to time their application for the best available offer, which may lag slightly behind Fed actions.”

Add to that lender competition, promotional offers and underwriting standards, all of which also have an impact on HELOC and home equity loan rates, says Kates. But beyond rates, “Some banks offer additional perks or services that may benefit borrowers,” he says. “Shopping around and comparing multiple offers is the best way to secure a competitive rate and find a banking relationship that aligns with your financial goals.”

Current home equity rates vs. rates on other types of credit

Because HELOCs and home equity loans use your home as collateral, their rates tend to be much less expensive — more akin to current mortgage rates — than the interest charged on credit cards or personal loans, which aren’t secured.

While average rates are useful to know, the individual offer you receive on a particular HELOC or new home equity loan reflects additional factors like your creditworthiness and financials. Then there’s the value of your home and the size of your ownership stake. Lenders generally limit all your home loans (including your mortgage) to a maximum 80 to 85 percent of your home’s worth.

Keep in mind: Even if you’re able to secure a favorable rate from a lender, home equity products are still relatively high-cost debt.

Unlock your home’s value

A fixed-rate home equity loan offers a lump-sum payout and a predictable repayment schedule.

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• Methodology
  

  The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison.