HELOCs soar above 8% to start year; home equity loans drop modestly

A huge jump in HELOC rates to start the new year. The $30,000 home equity line of soared 59 basis points to 8.22%, as a major lender ended promotions, according to Bankrate’s national survey of lenders. Meanwhile, the benchmark five-year $30,000 home equity loan dropped two basis points to 7.97%.

Before tapping into home equity, borrowers should carefully consider whether it’s the right financial tool for their situation, says Carl Holubowich, certified financial planner and principal at the Washington, DC–based firm Armstrong, Fleming & Moore.

“Converting home equity to cash requires that you borrow,” he says. “That means you convert what is an asset into what is now a liability — you have to borrow from somebody and eventually pay that back. Make sure that it fits in your budget. Are you trying to refinance higher-interest-rate debt? Or are you using it to go on vacation? Does it really make sense?”

Home equity rates are driven primarily by two factors — Federal Reserve policy and long-term inflation expectations. The Fed cut rates three times in 2025, sending HELOCs and home equity loans to their lowest levels in two years.

More relief could be on the way in 2026. Ted Rossman, Bankrate’s senior industry analyst, forecasts that home equity rates will continue edging lower if the Fed delivers the three quarter-point cuts currently projected for 2026.

According to Rossman, the Fed is now more focused on labor market conditions than on inflation pressures. He believes the economy will stay in good shape this year and that could increase the appetite for home equity borrowing. “That could actually apply a little downward pressure on rates, too,” he says.

Learn more: How the Federal Reserve affects HELOCs and home equity loans

Because HELOCs and home equity loans use your home as collateral, their rates tend to be much less expensive — more akin to current mortgage rates — than the interest charged on credit cards or personal loans, which aren’t secured.

While average rates are useful to know, the individual offer you receive on a particular HELOC or new home equity loan reflects additional factors, like your creditworthiness and financials. Then there’s the value of your home and the size of your ownership stake. Lenders generally limit all your home loans (including your mortgage) to a maximum of 80% to 85% of your home’s worth.