HELOC Rates Drop, Home Equity Loans Stay Steady

Richard Drury/ Getty Images; Illustration by Austin Courregé/Bankrate

There was a slightly mixed showing for home equity rates in the most recent week. The $30,000 HELOC (home equity line of credit) fell to 8.61 percent, a new 52-week low, after rising the previous week, according to Bankrate’s national survey of lenders. Meanwhile, the average $30,000 home equity loan was unchanged at 8.41 percent.

“With mortgage rates near 7 percent and homeowners sitting on more equity than ever, HELOCs and home equity loans will be the way they tap into it, even though those rates are still high also,” says Greg McBride, chief financial analyst at Bankrate.

What’s driving home equity rates today?

After hovering around 9 percent for more than a year, HELoan and HELOC rates have been gradually moving lower in 2024 — and the pace quickened with the onset of autumn. Their moves are currently being driven by two factors: lender competition — as banks and mortgage companies try to attract applicants with low-for-a-limited-time loan terms — and the Federal Reserve’s actions. Earlier in November, the central bank cut rates for the second meeting in a row, this time by a quarter point — reflecting the moderation of inflation.

“HELOC rates will continue to come down more or less in step with Fed rate cuts,” says McBride. “HELOC rates will be sensitive to declining interest rates and borrowers will see rates steadily moving lower, even faster than fixed-rate home equity loans. HELOC rates could fall faster than credit card rates, particularly if competition brings about introductory offers and if credit card issuers are skittish about delinquencies and slower to pass along lower rates.”

What influences home equity loan rates?

Several factors can influence rates on home equity loans and HELOCs.

Chief among them: changes to the Federal Reserve’s monetary policy. New home equity loans and HELOCs are tied to the prime rate, which tends to move alongside the benchmark interest rate that the Fed adjusts. As a result, when the Fed raises rates, borrowing costs on equity-based loans tend to go up. And the opposite happens when it lowers rates.

The Fed’s moves influence the general direction of interest rates not just for home equity loans, but also for consumer loans and financing in general. However, because they use your home as collateral, HELOCs and HELoan rates tend to be more akin to current mortgage rates — and much less expensive than the interest charged by credit cards and personal loans, which aren’t secured.

Comparing consumer loan rates

The Fed’s monetary policy influences interest rate trends overall and advertised rates you see. However, the individualized offer you receive from a lender on a particular HELOC or new HELoan reflects an additional factor: your creditworthiness — specifically your credit score, debt-to-income ratio, and the value of the home you’re putting up as collateral.