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When it comes to borrowing money right now, homeowners have it pretty good. That’s because home equity loans and home equity lines of credit (HELOCs) — which are loans that use your home’s equity as collateral — currently have much lower interest rates than most other major financing products on today’s market.
Take credit cards, for example. Those short-term borrowing products currently have rates averaging over 21%. Personal loan rates, while lower, still have a nearly 12% average. Meanwhile, rates on home equity products sit in the low-to mid-8% range.
That goes for both home equity loans and HELOCs. Recently, though, HELOCs had notably lower rates than home equity loans, the two are relatively even these days. Still, that doesn’t make these products interchangeable. Here’s what experts say to know about each product before you get one in today’s market.
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What to know about HELOC rates this July
HELOCs are almost always variable rate, meaning they have rates that are impacted by the wider rate environment. When the rate environment shifts, so do the rates on these loans.
This can be good in a falling-rate environment or bad if you’re in a market where rates are rising. Right now, it simply makes HELOCs unpredictable. While there’s a chance that the Federal Reserve will reduce interest rates later this year, it has yet to happen at any of its 2025 meetings so far. And recently, Fed Chair Jerome Powell indicated the bank would be taking a more wait-and-see approach.
“Powell has signaled that he wants to see if tariffs drive over the summer,” says Debra Shultz, vice president of lending at CrossCountry Mortgage.
As of now, the CME Group FedWatch Tool projects about a 20% chance that the Fed will cut rates at its July meeting. The chance is significantly higher at its September meeting and beyond.
“The factors affecting Fed cuts, and therefore lower HELOC rates, are all related to the Fed’s dual mandate to keep unemployment and inflation low,” says Jeff Taylor, board member for the Mortgage Bankers Association and founder and managing director at Mphasis Digital Risk. “If the job creation and the economy started softening, Fed cuts would be more likely, or if tariffs or geopolitical oil price shocks led to increased inflation, Fed cuts would be less likely.”
All in all, most experts predict HELOC rates will fall slightly by the end of the year. Taylor thinks two rates will come during the Fed’s September, October or December meetings, resulting in a 0.5% rate drop. Shultz forecasts at least a 0.25% decline by year’s end.
With this in mind, Shultz says, “If you need the funds now, go for it. HELOC rates automatically adjust every time the prime rate goes up and down. It’s very likely that your rate will drop by 0.25% once or twice in 2025 and hopefully more in 2026.”
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What to know about home equity loan rates this July
Home equity loans typically have fixed interest rates, so they’re not as directly tied to the Fed’s moves in monetary policy.
“These rates behave similarly to traditional first mortgage rates, which are based on daily trading of mortgage bonds,” Taylor says. “Rates drop when mortgage bond prices rise on less optimistic economic news, and rates rise when mortgage bonds sell on improving economic news or inflation threats.”
In short: A drop in home equity loan rates isn’t a lock for this year. And, if they do fall, they likely won’t be totally in step with Fed cuts — in timing or amount.
“Rates on first mortgages and home equity loans can sometimes rise after Fed cuts. In the last Fed cut cycle, rates dropped almost 1% before Fed cuts, then rose about 1% after Fed cuts,” Taylor says.
With home equity loans, your best bet is to watch for rate drops ahead of projected rate cuts, so potentially in late summer or early fall. When that happens, be ready to lock in your rate and secure it for the long haul.
“Home equity rates will follow standard, first-position lien mortgages,” says Evan Luchaco, a home loan specialist at Churchill Mortgage. “I believe we will see rates slowly but steadily decrease over the coming six to 24 months.”
The bottom line
While home equity loans and HELOCs can be good borrowing options to consider, they aren’t your only choice if you want to leverage the equity you’ve built in your home. Depending on what the interest rate on your current mortgage is, a cash-out refinance could be a good choice, and if you’re a senior, there are also reverse mortgages you can consider. Talk to a mortgage professional or financial advisor if you’re not sure which option is best for your goals and budget.
