Fed Eases Monetary Policy: Home Equity Loan Rates Set to Drop
The Federal Reserve has initiated a potential easing cycle, lowering its benchmark overnight lending rate for the first time in 2025. This move, along with projected future cuts, is set to influence home equity loan and HELOC rates, affecting homeowners' ability to tap into their equity.
Home equity tapping has surged in 2025, with homeowners extracting $52 billion in the second quarter alone, the highest level in nearly three years. This increase, a 16 percent rise from the previous quarter and almost 5 percent from the previous year, is likely to continue due to high equity growth and homeowners' reluctance to sell their homes.
The Fed's path and home equity rates depend on key economic factors such as inflation and the job market. The recent rate cut marks the beginning of a potential easing cycle after months of holding rates steady. While it may take several rate cuts for consumers to notice significant improvements in their monthly payments, average HELOC rates are projected to reach around 7.3 percent and fixed-rate home equity loan rates around 7.9 percent by the end of 2025. Promotional HELOC rate offers may be subdued due to the timing of the Fed's rate cuts at the end of the year.
The Federal Reserve's rate cuts are poised to influence home equity loan and HELOC rates, affecting homeowners' ability to tap into their equity. With home equity tapping already at high levels and projected to rise, homeowners should monitor these changes to make informed decisions about their finances.
