How far have HELOC interest rates dropped in the last 6 months?
Last September, getting a home equity line of credit (HELOC) may have been out of the question for homeowners looking to tap into their home equity. Rates rocketed up at the beginning of the month, nearly reaching 10%.
HELOC rates may not have made sense for a lot of homeowners then even if a HELOC's strengths did. As a line of credit, HELOCs let you withdraw money as needed, up to your limit. In most cases, you make interest-only payments during the time you can withdraw money ("draw period"). Principal-and-interest payments typically only start when the draw period ends and the repayment period begins. Home equity loans, on the other hand, require monthly payments that include principal and interest once you receive your loan funds, making payments more costly in the short term.
Much to the delight of homeowners with equity, however, HELOC rates have dropped over the past six months. But how much have they dropped and is now a good time to open a HELOC? We provide the answers below.
See how low your HELOC rate could be now.
How far have HELOC interest rates dropped in the last 6 months?
When you borrow money, you often have a choice between two types of products: fixed-rate and variable-rate. Fixed-rate products have rates that remain the same. Variable-rate products have rates that go up or down over time based on several factors, including rate decisions the Federal Reserve makes.
HELOCs use a variable rate, which is important when you look at how far HELOC rates have fallen over the past six months and why. The Federal Reserve ended 2024 with a series of three rate cuts: one each in September, November and December. While rate cuts aren't the only factor that influences HELOC rates, in this case, they seem to have made an impact. Here's how have far rates have dropped over the past six months, on a $30,000 HELOC, according to Bankrate:
- September 4: 9.99%
- October 2: 8.94%
- November 6: 8.70%
- December 4: 8.55%
- January 8: 8.27%
- February 26: 8.12%
- March 12: 8.04%
HELOC rates have fallen more than 1.9 percentage points since September. As of March 19, the average HELOC rate is 8.04%, down 1.95 percentage points compared to September 4. Furthermore, rates have hit two-year lows this year and have dropped below home equity rates. The considerable drop in rates since September is likely making homeowners wonder if now is the right time to open a HELOC.
See what your HELOC options could be here.
Why HELOCs make sense right now
From a rates perspective, now is a good time to take out a HELOC. Don't get caught up in waiting for rates to drop more, because a HELOC's variable rate could go up just as easily as it could go down, says John Aguirre, owner of mortgage lender John Aguirre Home Loans.
"There is no crystal ball," Aguirre says. "The truth is that there are so many factors that influence interest rates that timing the market is akin to gambling … If we're waiting for rates to get lower, now we're erring on the side of greed and it could come back to bite you."
But figuring out if a HELOC makes sense for you right now is more than just looking at rates. Why you're opening a line of credit is important, too, Aguirre says.
"Realistically we shouldn't be so focused on rate as we should on answering the question: Does this financing fit my needs and accomplish my goals," Aguirre says.
Using a line of credit to fulfill a need such as an investment opportunity, debt consolidation or access to a financial cash reserve are reasons why a HELOC might make sense for you right now, he notes. Debt consolidation, in particular, can be helpful with interest rates still elevated and inflation a consistent concern.
The bottom line
If you've decided now is the time to get a HELOC, Aguirre recommends taking a moment to identify the reason why you're getting the line of credit. If the need is related to an expense, itemize how much that expense will cost and then add a 5% to 10% buffer when you request your HELOC limit, Aguirre says.
Additionally, he notes you can improve your chances of HELOC approval by paying down debt to lower your debt-to-income ratio, asking for a credit line increase to improve your credit utilization ratio (a metric that has a big impact on your credit score) and finding ways to increase your income.
