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Borrowing against home equity has long been an affordable option for property owners. In fact, both home equity loan and home equity line of credit (HELOC) rates remained well below the cost of alternatives such as credit cards in the post-pandemic era — even as consumer borrowing costs rose across the board in response to the Federal Reserve’s interest rate hikes aimed at combating inflation.
Now, recent changes to HELOC rates and declining home equity loan interest rates have made tapping into equity even more attractive as the rates for both borrowing options fell in response to cooling inflation that led the Federal Reserve to begin lowering the benchmark interest rate starting in September.
With interest rates expected to decline further, borrowers may be wondering what the HELOC rates and home equity loan costs will be in December and whether it’s a good time to borrow. Here are a few scenarios that could occur.
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Home equity loan interest rates will stay the same
Homeowners hoping for a home equity rate cut this month could find themselves disappointed.
“Home equity rates will not change in December,” says Melissa Cohn, regional vice president of William Raveis Mortgage. That’s because there’s likely to be no catalyst for change prior to the year’s end.
The Federal Reserve is scheduled to meet December 17 and 18 and, if they change the benchmark rate, this will affect the costs at which banks access credit. This change can indirectly impact consumer loan costs. Fed rate cuts also drive changes in financial indexes used to set variable HELOC rates.
“Rates will likely go down if the Fed keeps cutting, which is what they’ve telegraphed,” says Chris Berkel, investment adviser and president of AXIS Financial.
After a 50 basis point rate cut in September and a 25 basis point cut in October, the Fed had still been signaling that future cuts are imminent. However, this doesn’t mean they will necessarily happen in December.
“Recently they’ve shifted tone a bit and may be more reluctant to cut at the December meeting,” Berke says. “Over the course of 2025, I would expect lower rates. I think that it’s a toss-up for the December meeting.”
The potential for the incoming administration to put inflationary policies in place, such as tariffs, combined with the rate of inflation moving higher in October for the first time since March, makes the Fed less likely to move aggressively to cut rates, experts say. Without this catalyst, there’s little reason to expect a rate drop in December, especially as a projected rate cut may have already been factored in.
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Home equity loan interest rates will drop
Although odds are that home equity loan rates won’t move much this month, some experts believe there is a possibility of a small rate decline — but, again, it will all depend on what the Fed decides.
“I believe the Fed will lower their rate by 25 basis points in December so we should see home equity loan interest rates drop as well,” says Aaron Gordon, a branch manager and senior mortgage loan officer at Guild Mortgage.
However, Cohn said that even if the Fed decides to act, the impact won’t be immediate.
“If the Fed does cut rates on the 18th of December then home equity loan rates will drop by .25% in January. The odds of that happening are 50/50,” Cohn says.
Home equity loan rates will rise
There is some good news for anyone looking to tap equity, though.
While the interest rate on these loans may not drop in December, rates are unlikely to increase this month. The Fed almost certainly isn’t going to raise rates so soon after the election, experts say.
Fed chairman Jerome Powell made clear that the outcome of the election would have no “near-term” impact on U.S. monetary policy. Powell has indicated the goal is to continue to move responsibly towards lower rates, so barring unexpected events, a rate increase before year’s end isn’t a likely outcome and there’d be no immediate reason for home equity loan rates to increase.
The bottom line
While homeowners shouldn’t expect significant movement in home equity loan or HELOC rates this December, the broader trend toward declining rates signals potential savings in the near future. With the Federal Reserve’s cautious approach to rate cuts and mixed signals from economic indicators, borrowers would do well to stay informed and plan strategically. Whether rates hold steady or drop slightly, tapping into home equity remains an attractive option for those seeking affordable borrowing solutions.
