The Federal Reserve has kept interest rates high for the last few years, hoping to tamp down spending and get inflation in check. The result has meant increased higher consumer rates and, in turn, increased borrowing costs for virtually every type of loan and financial product.

Fortunately for homeowners, home equity loan and home equity line of credit (HELOC) rates are still on the lower end when it comes to interest rates, especially compared to costly options like personal loans and credit cards. This can make tapping your home equity — something the average homeowner has over $300,000 worth of, about $206,000 of which is tappable — a more attractive option when you’re in need of cash.

There’s a chance home equity loan and HELOC rates could fall further, too. However, some economic conditions would need to change first. Are you considering tapping your home equity for cash? Here’s when you might expect home equity rates to move lower — and what could drive them there.

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When will home equity rates fall? These 2 things need to happen first, experts say

Here’s what experts say needs to occur before home equity loan rates can fall substantially:

Less spending and lower employment

Generally speaking, the economy needs to slow down before interest rates — on any product, really — will decline. 

“Softness in the economy usually leads to lower interest rates,” Lindsey Harn, a real estate agent with Christie’s International Real Estate, says.

What specifically needs to “soften,” though? That would be consumer spending and the booming jobs market, which has been notably strong in recent months. According to the latest government data, unemployment sits around just 4%, and the U.S. added nearly 300,000 jobs in May alone.

“For home equity loan and HELOC rates to decrease, several key economic conditions need to shift, such as a softer job market, which seems to be the main prompt the Federal Reserve is looking for to adjust interest rate policies,” says David Kakish, branch manager at Anchor Home Loans. 

Learn how affordable the right home equity borrowing option could be now.

Lower inflation

Once economic conditions soften, inflation should ease, which is what the Federal Reserve is trying to control. When that happens, ideally reaching the Fed’s goal of a 2% inflation rate, the central bank can begin easing its federal funds rate. 

This will reduce the prime rate, which HELOCs are based on, and eventually, interest rates on fixed-rate home equity loans will fall, too.

“Given that HELOC rates are closely tied to the prime rate,  any reduction by the Fed could lead to corresponding declines in both home equity and HELOC rates,” Kakish says.

There’s no telling exactly when that will happen, though, nor how quickly rates will come down at that point. It all depends on the Fed and how swiftly it plans to move.

“This week, the Fed released its latest projections for the Federal Funds Rate, which included just a single 25-basis-point cut by the end of the year,” says Darren Tooley, senior loan officer at Cornerstone Financial Services. “This is down from the projected three cuts forecasted at the March meeting.”

According to the CME Fed Watch Tool, there’s a 70% chance that a single rate cut happens in September (which is two Fed meetings from now). Once we get into 2025, though, even more rate cuts could be on the horizon.

“The most recent forecasts project four 25 basis-point cuts in 2025,” Tooley says. “If this holds true, that would mean the federal funds rate, and the rate on your HELOC, would go down 1.25% between now and December 2025.”

How to get a lower home equity rate now

You don’t have to wait around for rates to drop to tap your home equity. To get a lower interest rate on a home equity loan or HELOC today, start by improving your credit score, as this plays a big role in what interest rates you’re quoted. 

“Making sure your credit score is strong and healthy is step one,” says Jay Sharifi, president of Legacy Wealth Management. “The higher the score, the better the rate.”

You can also choose a longer loan term (say, 30 years) or opt for a smaller loan amount.

“Longer terms with fixed rates carry the lowest rates, from what I have seen,” says Christina McCollum, producing market leader at Churchill Mortgage. “Loan-to-value ratios that are low typically do as well.”

Finally, compare lenders. Rates and terms can vary significantly from one bank to the next. Shopping around can help ensure you get the lowest rate possible.