HELOC interest rates drop to 18-month low: Should you open one now?
The downward trajectory of interest rates on home equity lines of credit (HELOCs) doesn't appear to have been slowed in 2025. According to data released by Bankrate on January 8, the average rate on a $30,000 HELOC is now just 8.27%. That's the lowest level HELOC rates have been at in a year and a half, giving homeowners who need access to a large sum of money in the new year a clear and advantageous alternative to pursue now.
That said, in a declining interest rate climate, some borrowers may be tempted to wait for HELOCs to become even cheaper. But that would be a mistake for a variety of reasons, particularly considering that HELOCs have variable interest rates perfectly positioned to exploit today's changing rate climate. But that's not the only reason why homeowners in need of extra funding should strongly consider pursuing a HELOC now. Below, we'll break down three big reasons why it makes sense to act promptly.
Start by seeing how much equity you could borrow with a HELOC here.
Should you open a HELOC now with rates falling?
Not sure if now is a good time to borrow equity via a HELOC? Here are three reasons why it could be:
Rates could fall even further in 2025
While interest rate cuts appear to be on hold for when the Federal Reserve meets again later in January, they're not completely unrealistic, either. The pace of additional rate cuts in 2025 will just be harder to predict. But any rate cut will be welcome news for borrowers, particularly for those who open their HELOC at today's 8.27% rate. Considering that rates on this product were in the 9% range in 2024, it's not inconceivable that they'll fall in to the 7% range before year's end – putting money directly back into the pockets of homeowners.
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Rates will adjust independently each month
Because of its variable rate nature, borrowers won't need to worry about refinancing or constantly monitoring the rate climate for opportunities to secure a lower rate. HELOC interest rates will instead adjust independently. HELOC rates change each month for borrowers, perhaps to a significant degree following interest rate cuts or other economic changes. In 2024, for example, HELOC rates steadily declined for much of the year, allowing borrowers who took out a line of credit at the beginning of the year to enjoy additional cost savings over the following 12 months.
You'll save in multiple ways
Not only will you save by paying a slightly lower interest rate on a HELOC than what's available with a home equity loan each month, but you'll also save some potential out-of-pocket costs. That's because home equity loans, while capable of being refinanced to a lower rate, will require the borrower to pay closing costs to secure that lower rate. At a range between 1% to 5% of the total loan amount, that could be a significant expense for borrowers. And it can be easily avoided by opening a HELOC, which will drop lower for free. Just understand that HELOC rates can rise as easily as they can fall, so you'll want to budget for some volatility with your line of credit, especially as the rate climate evolves this year.
The bottom line
With interest rate reductions likely, a rate that will fall independently and the savings of not having to refinance, a HELOC makes sense for many homeowners now. Plus, if it's used for eligible home repairs and renovations, the interest paid on the line of credit may be tax-deductible, making today's rate concerns less significant. Still, it's critical to first calculate your potential costs – at a variety of realistic rates – to ensure you can effectively repay all that's withdrawn. Since your home is collateral in these borrowing exchanges, you'll want to make sure that you can make the payments as agreed upon with relative ease.
Have more HELOC questions? Learn more about your options here.