HELOC rates tumble at the start of 2025; home equity loan rates rise

New year, new low in home equity rates. The $30,000 home equity line of credit (HELOC) plunged nine basis points to an average of 8.27 percent — its lowest level in a year and a half, according to Bankrate’s national survey of lenders. In contrast, the average $30,000 home equity loan rose two basis points to 8.43 percent.

HELOC rates becoming more affordable dovetails with another housing trend, notes Joe Zeibert, vice president of mortgage and capital markets at FICO: More homeowners are choosing to stay in their current homes and update them, rather than move to a new place.

“This trend drives a growing need for renovations and home improvements,” he says. “HELOCs are an ideal financial solution to fund these projects. This convergence of factors positions home equity products, especially HELOCs, for a strong performance in the coming year.”

What’s driving home equity rates today?

For homeowners looking to tap into their record amounts of home equity, the good news could well be ongoing. Bankrate Chief Financial Analyst Greg McBride, CFA, forecasts that HELOC rates will continue to decline in 2025, averaging 7.25 percent, their lowest level in three years.

Demand for HELOCs is 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. The Fed cut interest rates three times in 2024 and may slash further this year, though it did signal at its last meeting there could be fewer rate cuts than expected.

“I expect the economy is still going to continue to grow at a slower, but still solid pace,” says McBride. “An environment where the economy is in good shape and homeowners have a pile of equity to draw from is also conducive to more marketing efforts and things like introductory rates. The forecast of where the HELOC rate is going to be at the end of the year encompasses not just the effects of what I expect to be three rate cuts from the Fed, but also one where we’re seeing more introductory offers and 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 the rates lenders advertise. However, the individualized offer you actually receive on a particular HELOC or new home equity loan 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.