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Interest rates on home equity borrowing products, like home equity loans and home equity lines of credit (HELOCs), have trended downward over the last couple of years, making it more and more affordable for homeowners to borrow cash. That’s a big draw for borrowers who have home equity to tap into, especially now that the average homeowner has more than $300,000 worth of equity to tap into.
But with changing inflation, an upcoming Federal Reserve meeting and increasing interest in home equity products, that trend may not continue forever. So, what’s in store for home equity interest rates in the near term? Here’s what experts say to expect if you’re hoping to tap your equity this January.
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Why home equity rates could stay the same this January
By and large, most experts think home equity rates will hold steady in January. For one, HELOCs have variable rates that are tied to the prime rate, which is directly influenced by the federal funds rate. And with the Fed’s next meeting not scheduled until late January, any notable movements in HELOC rates wouldn’t happen until then.
Current projections show the Fed will likely keep its rate stable this month. According to the CME Group’s FedWatch Tool, there’s an 83% chance the Fed holds at the 3.50 to 3.75% range it sits at today.
Home equity loan rates could see more of a shift, as those are long-term interest rates tied to larger economic factors, not the Fed rate.
“HELOC rates will move first and most visibly because they are tied to the prime rate,” says David Kakish, a home loan expert at Anchor Home Loans. “If the Fed holds steady early in the year, HELOC rates likely stay flat to slightly lower. Fixed-rate home equity loans will follow longer-term bond yields, so those could drift a bit — but nothing dramatic out of the gate.”
Overall, though, experts think things will hold steady for home equity products, which currently average in the mid-7 to low-8% range.
“It’s unlikely that rates will rise,” says Karri Noble, senior vice president of home equity operations at loanDepot. “They’re more likely to remain stagnant.”
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Why home equity rates could drop lower this January
If the Fed does reduce its rate, then HELOC rates could fall, too — but that wouldn’t occur until the tail end of the month.
“Fixed home equity loans would take longer but still follow,” Kakish says. “A meaningful drop is more likely later in 2026 than right at the start.”
For the Fed to cut rates, there would need to be changes in the economy — namely, inflation and the labor market.
“Labor and inflation data will be the biggest drivers of home equity loan and HELOC rates as we start the new year,” Noble says. “If December’s jobs report and Consumer Price Index — due in early to mid-January — show signs of softening, rates could begin to drift lower in a meaningful way. The data will influence the five-year Treasury yield that home equity loans are tied to and inform the Fed’s January 28 decision.”
Why home equity rates could increase this January
Increasing home equity rates are the least likely scenario this January.
“It would most likely take a combination of the Fed Funds rate increasing, plus some overall market and socioeconomic volatility,” Rose Krieger, senior home loan specialist for Churchill Mortgage, says.
For now, the Fed isn’t expected to increase its rate in January, and inflation actually ticked down according to the most recent numbers.
“Rates would need a surprise resurgence in inflation or a reacceleration in the economy that forces the Fed to stay restrictive longer than expected,” Kakish says. “That scenario is possible, but it is not the base case markets are pricing right now.”
The bottom line
It’s most likely that home equity rates will hold steady at the start of the year, with possible dips later on, if the Fed decides to reduce its federal funds rate further. In the meantime, you can watch inflation and labor trends, and work with a loan officer early to gauge what sort of rates and fees you may be facing.
“Lenders may not have control over the rates, but we can review your credit profile and home details to help position you for the best rates available,” Krieger says.
When you’re ready to pull the trigger, make sure to shop around for your home equity loan or HELOC. Products, interest rates, and fees can vary widely between lenders, so it’s important to compare at least a few options to ensure you get the best deal.
