Home Equity Rates Drop As Fed Cut Hopes Rise | Bankrate

Shaking off their early-summer paralysis, home equity interest rates declined again, across the board this week. The average rate on a $30,000 home equity line of credit (HELOC) fell one basis point to 8.12 percent, according to Bankrate’s national survey of lenders. Meanwhile, the average rate on a $30,000 home equity loan dropped two basis points to 8.23 percent.

The drop comes even as more investors are betting on a general interest rate cut next month. CME FedWatch, a tool offered by derivatives marketplace CME Group that tracks probable Federal Reserve monetary-policy moves, is forecasting a near 100 percent likelihood of a rate cut at the Sept. 16-17 meeting. Of course, “there’s no guarantee when or by how much,” notes Dan Sullivan, managing director and head of private and personal banking at CIBC US. “This uncertainty introduces interest rate risk, especially for HELOCs with variable rates, meaning borrowing costs could remain elevated even if [benchmark] rates begin to decline.”

What’s driving home equity rates today?

Rates on HELOCs and home equity loans are being driven primarily by two factors: lender competition for new customers and the Federal Reserve’s actions. The Fed especially impacts the cost of variable-rate products like HELOCs.

Both HELOC and home equity loan rates have declined substantially from highs in 2024, although HELOC rates have rebounded somewhat from lows they hit earlier this year. Still, Bankrate Chief Financial Analyst Greg McBride is holding to his forecast that home equity rates will decline in 2025, with HELOCs averaging 7.25 percent and home equity loans coming in at 7.90 percent.

“Both are still well within the realm of possibility if the Fed resumes cutting interest rates in the second half of the year,” McBride says.

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. “Many homeowners are sitting on a mountain of home equity, but borrowing against it is still costly, with the average rate still over 8 percent and many lenders charging double-digit interest rates,” McBride says. “This is not the low-cost form of borrowing that homeowners had become accustomed to for many years. So if you must borrow, have a game plan for paying it back.”