Forecast: HELOC and home equity loan rates to fall further in 2025

Homeowners looking to tap their equity could get more welcome news in 2025 as the rates on home equity lines of credit (HELOCs) and home equity loans stand to trend lower, according to Greg McBride, CFA, chief financial analyst for Bankrate.

McBride forecasts HELOCs to average 7.25 percent — a low not seen since 2022 — and home equity loans to average 7.90 percent.

“HELOC rates are coming down; they’re coming down at a faster rate than home equity loans and the gap has closed,” McBride says. “It’s a little bit like the walker who gets a 10-minute head start on the runner. Eventually, the runner is going to be at parity with the walker, but that doesn’t mean they’re moving at the same speed.”

What happened to HELOC rates in 2024

As inflation eased, the Federal Reserve began cutting rates in September, the first such move since 2020. The cuts have been a key factor driving HELOC rates, which are variable. HELOC rates fell from a high of 10.16 percent at the beginning of 2024 to an average 8.36 percent at the end of the year, according to Bankrate’s national survey of lenders.

Of course, more Fed cuts in 2025 could translate to further declines.

“I am forecasting three rate cuts from the Fed and that will translate most directly to home equity lines,” McBride says. “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.”

What happened to home equity loan rates in 2024

While home equity loans bobbed around a bit in 2024, they fell more modestly than HELOCs, dropping from a high of 8.98 percent in January to 8.41 percent by the end of the year.

Home prices are at record highs and homeowners are sitting on more equity than ever. Add to that elevated mortgage rates, and more of those homeowners could opt to tap that equity in 2025.

“Anybody who’s got a first mortgage at 3, 4 or 5 percent, they’re not going to do a cash-out refinance to tap into their equity,” McBride says. “They’re going to look at a home equity line of credit or a fixed-rate home equity loan. That’s a dynamic that’s been in play in 2024. I expect that to continue in 2025.”

Still, McBride says accessing home equity is a relatively pricey proposition today compared to years past.

“This is not the 2010s where rates were really low and you could justify revolving that balance because on an after-tax basis, it was costing you next to nothing,” McBride says. “That is not the case anymore. If you borrow it, you’ve got to have a game plan for how you’re going to pay it back because it’s costly debt now.”

Next steps for homeowners

• Get clear on your goals. Your home’s equity is a major asset, so if you’re ready to take out a HELOC or home equity loan, make sure you’re using those funds responsibly. Here, we run down good reasons to tap your equity and reasons not to.
• Take stock of your equity. Most lenders require a minimum of 15 or 20 percent equity to be eligible for a home equity line or loan. If you know your home’s value — or at least have an estimate — and the remaining balance on your mortgage, our home equity calculator can help you figure out how much you might be able to tap.
• Shop around for the best rates. Whether it’s a HELOC or home equity loan you’re after, compare offers from at least three lenders — and don’t just go with your bank. Consider credit unions and online lenders, too. Keep in mind that many HELOCs have introductory rates, so as you compare offers, consider how long that promo rate lasts. Check our home equity lender reviews, as well.
• Factor in fees. While the rate is important, virtually every HELOC or home equity loan has some kind of cost, whether it’s an origination fee, an annual fee, a minimum draw amount or a prepayment penalty. Understand the fine print before proceeding.