When will HELOC and home equity loan rates decline? It’s a reasonable question to ask if you’d like to tap into your home equity to withdraw cash for renovations, debt consolidation, or other needs. After peaking at just over 10% in December 2023, average HELOC and home equity loan rates have followed a downward trend, dipping to 7.43% and 8.08% respectively, as of July 2026. Will HELOC rates go down again, and will it happen soon? Understanding how Federal Reserve actions affect HELOC and home equity loan rates can offer insight on what to expect.
Table of Contents
- Key Points
- • HELOC rates are nowhere near the lows they reached in 2022, but they’re once again moving in a downward direction.
- • Federal Reserve decisions affect HELOC rates directly, through changes in the federal funds rate.
- • When the Federal Reserve raises the federal funds rate, HELOC rates can follow suit; when a rate cut happens, HELOC rates can fall.
- • Improving your credit score, taking on a smaller line of credit, and waiting until HELOC rates fall can help you lock in the best rate available.
How the Federal Reserve Affects HELOC Rates
The Federal Reserve affects HELOC rates through changes in the federal funds rate. This is the rate at which banks lend money to one another overnight. When the Fed adjusts the federal funds rate, either raising or lowering it, the impact trickles down to consumers. In the simplest terms, HELOCs become more expensive when the Fed raises rates. If the Fed cuts rates instead, it’s cheaper to get a HELOC or home equity loan.
How the Prime Rate Connects to HELOC Rates
There’s another rate that factors into the equation when discussing how the Federal Reserve affects HELOC rates: the prime rate. What is the prime interest rate? It’s the rate that banks charge their most credit-worthy customers to borrow. Banks typically set the prime rate as equal to the federal funds rate, plus a few percentage points. From there, banks may charge the prime rate plus a fraction of a percentage point (or more) on top for a HELOC.
How does all of this fit together? It goes something like this:
Federal Reserve raises/lowers the federal funds rate → Banks raise/lower the prime rate → HELOC rates rise/fall
Understanding this sequence and monitoring the Federal Reserve’s activity around rates can help you decide on the right time to pursue a HELOC or home equity loan. The Federal Reserve holds scheduled meetings eight times per year to evaluate and discuss rates, and determine whether to make changes or keep the federal funds rate at its current level. These meetings can affect how often a HELOC rate changes. When the federal funds rate drops, as noted, it’s typically the case that HELOC home equity loan rates decline.
Recommended: What Is a HELOC and How Does It Work?
How Often Do HELOC Rates Change?
When discussing how often HELOC rates change, it’s important to distinguish between new HELOC rates in the marketplace and rates for current borrowers. A HELOC market rate represents the current average rate lenders are charging, based on where the prime rate stands in conjunction with the federal funds rate. If you’re shopping for a HELOC, this is the rate you’ll see when you compare different lenders. Market rates can change daily, depending on the conditions of the rate environment.
Current borrower rates are the rates assigned to HELOCs that have already been issued. HELOCs typically have variable interest rates, which means the rate may go up or down over the loan term. It’s possible to find a fixed-rate HELOC, but they’re less common.
Your loan agreement will specify how often this rate can change, following adjustments to the prime rate. It’s not unusual for your lender to update your rate at the beginning of each monthly billing cycle. Your loan agreement should also explain the ceiling or rate cap for your loan. This represents the maximum rate increase the lender can apply.
Home equity loan rates typically don’t change. Instead, you have one fixed rate you pay for the entirety of the loan. Home equity loan rates tend to be slightly higher than HELOC rates. However, you might prefer a home equity loan to a HELOC If you’d like to know that your payments and total repayment cost won’t change over time.
Recommended: How Is HELOC Interest Calculated?
Are HELOC and Home Equity Loan Rates Declining?
HELOC and home equity loans are declining and have been since reaching 10% at the end of 2023. Between January and July 2026, HELOC rates hovered around 7.5% on average, sometimes moving higher and sometimes moving lower. Average home equity loan rates have been just above 8% over the same period.
Key Fed Moves That Have Impacted Home Equity Rates
Fed rate shifts are mirrored by changes in home equity rates, though the impacts are not always immediate. This is easy to see if you examine the history of the federal funds rate alongside historical mortgage rate fluctuations. For example, the Fed cut rates twice in March 2020 in response to the COVID-19 pandemic, resulting in a decrease of 1.5 basis points in the federal funds rate. This sent HELOC rates on a downward trend, though they didn’t hit a new low of 3.87% until November 2021.
Throughout 2022 and 2023, the Fed introduced a sustained series of rate hikes, including four consecutive federal funds rate increases of 0.75 basis points between June and November of 2022. Those moves sent HELOC rates climbing again, eventually hitting 10.09% in December 2023. Beginning in 2024, the Fed shifted back toward rate cuts, with the last one occurring in December 2025.
Since then, rates have held steady but what the Fed chooses to do for the rest of 2026 and going into 2027 could influence where HELOC rates land. Rising oil prices, for example, could prompt a rate hike if the Fed deems it necessary to combat inflation.
Is Now a Good Time to Get a HELOC or Home Equity Loan?
The best time to get a HELOC or home equity loan is when you’re able to borrow the amount you need, with a monthly payment you can afford, at the lowest rate you qualify for. That being said, uncertainty about which way the Fed will move rates, if at all, could put pressure on homeowners to pursue a HELOC or home equity loan now, rather than later.
Are HELOC and home equity loan rates the lowest they could be? No, not if you consider long-term trends in HELOC and home equity loan rates. Will HELOC rates go down? It’s possible, though there’s zero certainty about when that could happen. Again, it all depends on how the Fed decides to handle monetary policy in light of what’s happening with the economy.
Here’s a better question to ask: Can you take a chance on getting a lower HELOC rate later, or do you need to lock in HELOC cash now to fund your goals? If you need funds now, home equity rates are not unreasonable. They’re nowhere near 3% but they’re not in the double-digit range either. If you don’t need access to credit now, you might put off your HELOC search. Keep in mind, however, that if the Fed decides to raise rates in 2026 or 2027, then cut them later, it could take months for rates to fall back to where they are now.
How To Lock In a Lower HELOC Rate
When you’re ready to get a HELOC, shopping around to compare rates from different lenders is a must. Aside from that, there are a few other things you can try to bring your rate down:
• Take good care of your credit score: A higher credit score could help you unlock lower HELOC rates. Some of the best ways to raise your score include paying bills on time, reducing your debt levels, and limiting how often you apply for new credit.
• Reduce your debt-to-income (DTI) ratio: Your DTI ratio measures the percentage of your take-home pay that goes to debt repayment each month. Lowering this number, either by paying off some of your debt or increasing your income, could help you get a better HELOC rate.
• Shop your current bank first: Your current bank may offer relationship rate discounts on HELOCs and home equity loans. It’s worth having a quick conversation with a banker or mortgage officer to find out.
• Look for promotional rates: How often do HELOC rates change can be affected by promotional programs at different lenders. Some lenders may offer a much lower HELOC rate for an initial period. For example, you might pay 3.49% for the first six to 12 months. This won’t lower your rate over the entire loan term but it could save you some money in the beginning.
• Enroll in autopay: Setting up automatic payments for your HELOC could help you snag a rate discount. The reduction may be 0.25% to 0.50%, but every penny adds up when trying to save on HELOC interest.
• Consider a hybrid HELOC: Some HELOCs combine variable and fixed rates into a single line of credit. Hybrid HELOCs may allow you to pay a variable rate initially, then lock in portions of your credit line at a fixed rate, or start with a fixed rate and later switch to variable.
The Takeaway
Will HELOC rates go down? It’s possible, if the Federal Reserve decides to cut rates. Given the Fed’s history of raising and lower rates, it’s certain that HELOC rates will change again at some point in the future. If you’re thinking of getting a HELOC, consider how much you’d like to borrow. Then, calculate the amount of equity you have in your home. Depending on your qualifications, you might be able to borrow up to 85% of your equity if you decide to get a HELOC or home equity loan.
SoFi now offers flexible HELOC options to turn your home equity into cash. Access up to 85% of your home equity, or $350,000, to finance home improvements or consolidate debt. Competitive interest rates and repayment terms up to 20 years could result in lower monthly payments versus other loans. And the online application process is quick and convenient.
FAQ
Do HELOC rates change automatically when the Fed cuts rates?
Lenders can change interest rates on new HELOCs quickly when the Fed cuts or raises rates. But existing HELOC borrowers may experience a lag in how quickly their rate changes. For example, if the Fed cuts rates at its June meeting, you may not see a difference in what you pay until your August billing cycle.
How much have HELOC rates dropped since their peak?
Since HELOC rates peaked at just above 10% in December 2023, they’ve dropped back to 7.44%, as of July 2026. That’s a roughly 25% decline.
Can you convert a variable HELOC rate to a fixed rate?
You could convert a variable rate HELOC to a fixed rate if your lender allows it. Hybrid HELOCs may allow you to swap one rate type for another at some point during your loan term. If you can’t switch your rate with your current lender, you could also refinance a variable-rate HELOC into a fixed-rate home equity loan.
Do home equity loan rates also go down when the Fed cuts rates?
The rates on new home equity loans go down when the Fed cuts rates, since they’re set the same way as HELOC rates. The main difference between home equity loan rates and HELOC rates, other than that home equity loans typically have a fixed rate, is that home equity loan rates tend to be a little higher. Fixed-rate loans don’t offer lenders an opportunity to capitalize on rate fluctuations, so they make up for that by charging a little more.
What is the prime rate and how does it affect my HELOC?
The prime rate is the rate that banks charge their most credit-worthy customers. It’s typically three percentage points higher than the federal funds rate. Banks use the prime rate to set HELOC and home equity loan rates, increasing the interest rate they offer borrowers incrementally over the prime rate based on the borrower’s credit score and other qualifications.
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