After more than four years in which interest rates were hiked numerous times, the Federal Reserve started cutting interest rates in September, starting with a larger-than-expected 50 basis point cut. But that was just the beginning, with the Fed continuing to cut rates this week with a 25 basis point reduction. And another cut in the same increment is widely expected when the Fed meets again in December. While these cuts have brought new borrowers into the fold, they underline something that home equity borrowers may have already noticed: Interest rates have been on the decline all year.

This has been particularly noticeable for those who have tapped into their home equity via a home equity line of credit (HELOC). These products have variable interest rates, which can be problematic when interest rates are rising, as they were in 2022 and 2023, but advantageous now that the wider rate climate is cooling again. So how far, precisely, have HELOC interest rates dropped this year? And how much further could they fall? That’s what we’ll break down below.

See how low of a HELOC interest rate you could qualify for here.

Here’s how far HELOC interest rates have dropped this year

HELOC interest rates are traditionally lower than what’s available with credit cards and personal loans, thanks to the home in question serving as critical collateral. But they didn’t start 2024 in a particularly attractive position, coming in at 10.16% on January 3, 2024, according to historical data from Bankrate. 

Since that point, however, they’ve dropped significantly, albeit in a bumpy manner. By January 10, 2024, they were averaging 9.32% and by February 7 they were at 9.12%. Rates dropped just below 9% in March but spiked again in May to 9.89% as the battle against inflation appeared more problematic than many had anticipated. As inflation cooled in the following months, however, HELOC rates did, too. They spiked back up to just under 10% in early September but have since dropped significantly with two Fed rate cuts issued. 

Now, the average HELOC rate is just 8.70% – almost a point and a half lower than what it was in January. And if inflation continues to drop (the October reading is due out on November 13), HELOC rates will likely continue to fall. And if the Fed issues a final 2024 rate cut in December, as they almost certainly will, rates will likely end the year close to two points lower than where they started it. 

That noted, predicting future interest rate changes with precision is almost an impossibility. If you know you need the financing then, and are comfortable with today’s current rates, it makes sense to apply for a HELOC now.

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Why a HELOC may be better than a home equity loan now

Right now, home equity loans actually have a slightly lower rate when compared to HELOCs (8.41% versus the HELOC’s 8.70%). But HELOCs, thanks to that variable interest rate, are better positioned to take advantage of today’s cooling rate environment. Home equity loan rates are fixed, meaning that borrowers will need to refinance them (and pay 1% to 5% of the loan amount in closing costs) to get that lower rate. 

Understanding this dynamic, then, and the real potential for rates to continue to decline into 2025, borrowers may want to take a calculated risk by opening a HELOC instead of a home equity loan. It won’t be the right approach for everyone, but if you want to be best positioned to capitalize on what could be multiple rate cuts to come, a HELOC offers you the more optimal way to do so.

The bottom line

HELOC interest rates have plunged by around one and a half percentage points so far this year and many experts predict that they will fall even further in December and into 2025. So, if you want to borrow from your home equity but also want to be able to exploit today’s evolving rate climate, a HELOC may be the preferred option. Just avoid the temptation to overborrow, as well, since your home functions as collateral here and you could jeopardize your ownership if you’re unable to pay back the full line of credit.

Have more HELOC questions? Learn more here now.