Why HELOC borrowers shouldn't wait for more Fed rate cuts to borrow their home equity
After the Federal Reserve issued a series of interest rate cuts in the final months of 2024, many borrowers anticipated additional reductions in 2025. But that hasn't been the reality as the bank paused additional cuts when it met in January largely then due to a steadily increasing inflation rate. And the Fed didn't meet at all in February.
This week, the bank is having its second meeting of 2025, and it comes after the most recent inflation reading showed a slight drop in the rate, the first such reduction since September 2024. While Fed rate changes aren't expected this week, if that inflation reading continues to decline they could be back as a serious consideration later this year.
All of this speculation is particularly important for homeowners who are considering borrowing from their home equity via a home equity line of credit (HELOC). With the average home equity amount of around $313,000 right now, borrowing with a simple-to-use product like a HELOC could be advantageous in today's high-rate climate. But should borrowers wait for additional Fed rate cuts to act or does it make more sense to get started with an application now, instead? That's what we'll break down below.
Start by seeing how low of a HELOC interest rate you'd qualify for here.
Why HELOC borrowers shouldn't wait for more Fed rate cuts to borrow their home equity
Here are three big reasons why prospective HELOC borrowers shouldn't wait for additional Fed rate reductions to borrow from their home equity:
Rates are already low
HELOC interest rates fell for most of 2024. Then they hit 18-month lows at the start of this year and followed that by hitting two-year lows in recent weeks and they've continued to decline slightly since. Now at just around 8%, HELOC rates are averaging two points lower than they were in the beginning of 2024, making them an optimal way to borrow a large amount of money right now. So do the math and calculate your future repayments, you may be surprised at how inexpensive it already is to borrow with a HELOC.
Compare your current HELOC options online today.
Rates will adjust downward independently
Should the Federal Reserve cut rates again later this year existing HELOC users won't need to worry as their rates will adjust downward independently. That's because HELOC rates are variable and subject to change based on market conditions. If those conditions point toward lower rates, HELOC rates will fall as well. Specifically, HELOC rates change monthly for borrowers, which can be a positive now. And because borrowers won't have to refinance to secure those lower rates they'll also save on refinancing closing costs that they may have otherwise got stuck paying if they used a home equity loan.
Lenders may reduce rates before rate action is formalized
A formal reduction in the federal funds rate is most likely to result in lower HELOC rates. However, borrowers should be aware that official action doesn't necessarily need to happen for lenders to start reducing their rates. If a formal cut looks imminent, lenders can start reducing their rates in anticipation of that action. So waiting for an official cut won't be necessary for HELOC borrowers as their lenders may start reducing rates early, as they seemingly have in recent months even though the federal funds rate remained frozen.
The bottom line
While it may make sense to time the market and the Fed for some borrowing opportunities, interested HELOC borrowers won't need to wait to act. With rates already falling, a variable rate that positions borrowers to exploit additional rate cuts to come and the likelihood of lenders lowering rates in anticipation of additional reductions, it makes sense to apply for a HELOC now versus later. Still, it's critical to remember that your home functions as collateral when withdrawing equity and that HELOC rates can rise as easily as they can fall so homeowners will need to weigh these concerns against their imminent needs for cost-effective funding now.
