Home equity loan and HELOC rates rise as Fed holds steady

Rates on home equity loans have declined slowly over the past year despite some volatility. HELOC rates have also fallen from their levels a year ago, though they have moved less predictably.

In recent weeks both sets of rates have begun to rise. The main drivers are the Federal Reserve's decision to hold its federal funds rate steady since late 2025 and an increase in inflation.

Experts say several conditions would need to occur for rates to fall this summer. Kenisha Forbes, director of loan processing at Georgia's Own Credit Union, said a true resolution to the Iran conflict, a drop in inflation and further contraction in the job market would be required. Lynette Arrasmith, mortgage advisor at Churchill Mortgage, noted that HELOCs are tied to the prime rate, which moves with the federal funds rate.

Most analysts do not expect those conditions to materialize soon. Adam Slack, senior vice president of mortgage lending at CrossCountry Mortgage, called a significant decline in home equity rates unlikely this summer. Jeff DerGurahian, chief investment officer and head economist at loanDepot, said he would not count on a meaningful drop in the near term.

Rates are more likely to rise if the conflict in Iran continues and pushes gas prices and inflation higher. Slack said rates could increase if inflation proves more persistent or if the conflict drags on. DerGurahian added that hot inflation, strong employment or renewed tensions could keep upward pressure on rates. U.S. inflation currently stands at 4.2 percent, its highest level in more than three years.

Rates could also remain steady. DerGurahian said HELOC rates are likely to hold unless the Fed acts, though the risk leans toward increases rather than cuts. He noted that new Fed Chair Kevin Warsh is unlikely to raise rates soon after taking office. Home equity loans, which are fixed-rate products, are less likely to stay flat because they respond to a wider set of factors.

Forbes said the next couple of months could be tricky for home equity rates and that the current climate is unpredictable.

Experts advise borrowers to focus on the purpose of the loan rather than trying to time the market. Forbes said debt consolidation and home improvement remain sensible uses when a 7 percent rate is available, well below typical credit-card rates.