Interest rates for home equity remain steady as the Federal Reserve maintains its current policy direction.
In the first quarter of 2025, more than 46% of mortgaged residential properties were equity-rich, indicating a growing trend of homeowners with substantial home equity [1]. This equity has been a significant factor in the rise of Home Equity Line of Credit (HELOC) and home equity loan usage.
The Federal Reserve's monetary policy actions and lender competition for customers are the primary drivers of home equity rates. The Fed especially impacts the cost of variable-rate products like HELOCs, as their rates are often tied to benchmark rates influenced by the Fed's decisions [2].
Specifically, HELOC rates are linked to the Wall Street Journal prime rate, which moves in tandem with the federal funds rate set by the Fed. As the Fed raises or lowers the federal funds rate, this impacts the prime rate and therefore HELOC rates more directly and quickly than fixed-rate home equity loans or mortgages [4].
As of March 2025, outstanding total HELOC balances were $381.3 billion, a 9.7% gain from the same time last year. HELOC withdrawals in the first quarter of 2025 reached the highest first-quarter volume in 17 years, totalling nearly $25 billion [1].
Despite the Fed's continued pause, home equity rates have not seen a significant decline. Both HELOC and home equity loan rates have remained unchanged since July [1]. McBride predicts that in 2025, HELOCs will average 7.25% and home equity loans will be 7.90% [2].
Home equity products are still considered relatively high-cost debt, with the average rate over 8%. Many lenders charge double-digit interest rates for home equity products. The average rate on a $30,000 HELOC is 8.26%, while the average rate on a $30,000 home equity loan is 8.25% [1].
The Bankrate.com national survey of large lenders, conducted weekly for over 30 years, gathers rates and yields on banking deposits, loans, and mortgages from the 10 largest banks and thrifts in 10 large U.S. markets [3]. This survey has consistently shown that home equity rates have declined substantially from their highs in 2024 but have moved away from their lowest points this year [1].
Variable-rate HELOCs will decrease in response to Fed rate cuts, whenever that happens [2]. However, it's essential to note that home equity products are still more expensive than other forms of credit, with the average rate on a personal loan being 12.64% and the average rate on a credit card currently 20.13% [1].
In conclusion, the Fed's monetary policy actions primarily drive HELOC rates via changes to the federal funds rate and the consequent prime rate, while home equity loan rates are influenced both by Fed policy and by competitive market conditions. The Fed’s decisions also impact market expectations, which can cause rates to move in anticipation of future policy changes rather than instantly [1][2][3][4].
- Influenced by the Federal Reserve's monetary policy actions and competitive market conditions, home equity loan rates are determined by a combination of factors, unlike HELOC rates that are primarily driven by the Fed.
- With the growing trend of homeowners leveraging their home equity, personal finance strategies often include exploring investments, lifestyle enhancements, and even ventures in sectors like home-and-garden, funded by Home Equity Line of Credit (HELOC) or home equity loans.
- Compared to other forms of credit, such as personal loans and credit cards, home equity products still present relatively high-cost debt options, making careful consideration necessary when deciding to invest in real-estate or other aspects of personal finance.
