Because your home serves as collateral when borrowing from your home equity, lenders tend to offer lower interest rates than they would for other credit options. This is why home equity loan rates, for example, are almost three times less expensive than credit cards are right now. And they’re multiple points lower than personal loans. Still, the average home equity loan interest rate right now is 8.41%. And it’s even higher for two common repayment terms: 8.42% for a 15-year home equity loan and 8.50% for a 10-year one. 

Knowing what today’s home equity loan rates are, then, and understanding the likelihood of an ongoing rate-cutting campaign on behalf of the Federal Reserve, many homeowners may be wondering when home equity loan rates will fall below 8%. With the average amount of home equity around $330,000 right now, the answer to this question could determine when owners may (or may not) decide to borrow from their home. Below, we’ll discuss when this could happen.

Start by seeing what home equity loan rate you’d be eligible for here.

When will home equity loan rates fall below 8%?

While predicting interest rates is impossible to do with certainty, some factors can help push home equity loan rates below 8%, but it will be a gradual process. In theory, the following factors working in conjunction with one another could cause rates on this product to fall below 8% sometime in the first half of 2025:

Inflation

As inflation continues to cool, it will give further credence to the Fed’s rate cut actions. With it at 2.4% in September (the next inflation reading will be released on November 13), it’s just over the Fed’s target 2% goal. As it approaches that figure or drops below it, then, the Fed could continue reducing its federal funds rate. 

And while that won’t cause home equity loan rates to fall by the same measurement, it will keep them on a downward trend, potentially resulting in them falling below 8%. But a formal rate cut doesn’t need to be immediately issued after the next inflation report for rates to fall either as many lenders may price in presumed reductions into their offers in advance.

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Unemployment

Unemployment is a critical barometer for measuring wider economic health. And while it’s low now (just around 4%), changes here could affect interest rates, too. If unemployment rises, for example, the Fed may cut rates to help. But if it remains the same or drops further, the Fed may take little or even no rate action in response. Monitoring the unemployment rate, then, is critical for those looking to time a home equity loan application to secure the lowest rate.

The Fed

Both inflation and unemployment figures are really just precursors to what the Fed will (or won’t do). But it’s important to read between the lines, too. While an official rate cut is crucial, what Fed chairman Jerome Powell says about the potential for rate cuts going forward is also important as lenders listen to this and make appropriate adjustments to their offers, including for home equity loans. 

So if the federal funds rate is cut again in December and, post-meeting, Powell hints at additional cuts to come in early 2025, lenders may start reducing their home equity loan rates in response. That could potentially getting borrowers closer to that 8% threshold earlier than initially anticipated.

The bottom line

Predicting when interest rates will fall to a specific range is impossible to do, as homebuyers who saw mortgage rates plunge and then rise again this fall can attest. But if inflation and unemployment figures continue to remain steady, the Fed could have the argument it needs to continue cutting rates, possibly leading to home equity loan rates below 8% in the first half or even the first quarter of 2025. Still, any unforeseen economic factors, like the pandemic in recent years, could cause rates to move unpredictably. So waiting comes with inherent risks. Borrowers should weigh those against acting now to better determine their best action.

Learn more about your current home equity loan options now.