Home equity loan rates are on a noticeable decline, providing new borrowing opportunities for owners.
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With concerns over inflation, unemployment and the ramifications of the ongoing government shutdown, homeowners may understandably want to limit any rash moves and avoid borrowing money right now. But the reality is that these factors are making it difficult to make ends meet, and, right now, home equity levels are robust in many parts of the country.
Home equity loan interest rates are also pretty low, too.
With an average rate of just 8.11% on a 5-year home equity loan, rates here are near their lowest level since 2023, according to newly released Bankrate data.
With your home functioning as collateral, however, owners must approach this potential borrowing source strategically. Failure to pay here could result in foreclosure, so borrowers must make an informed decision. So, with home equity loan rates near a two-year low, is a loan worth applying for now? It may be. Below, we'll examine what homeowners should know now.
Start by seeing how much equity you could borrow here.
With home equity loan rates near a 2-year low, should homeowners apply for a loan now?
While each homeowner's financial needs and goals are different, many could benefit from applying for a home equity loan now. Here's why:
Rates are lower than many alternatives
That average 8.11% home equity loan rate doesn't just represent the lowest home equity loan rate available in years. It also represents a cost-effective alternative way to borrow now. Personal loan interest rates, for example, are comfortably over 10% currently and credit card rates, while down from a recent record high, are still over 20%.
Neither, then, offers an affordable way to borrow a large sum of money now in the same way a home equity loan does. And that dynamic is unlikely to change materially anytime soon.
See how low your current home equity loan rate offers are here.
Rate drops in the months ahead will be minimal
Yes, there are two pending Federal Reserve meetings scheduled for the final two months of 2025. And, yes, interest rate cuts are widely anticipated for both meetings. However, it's important to put this expected action into context. Both rate cuts, if they're even issued, are likely to be by just 25 basis points each.
And, when and if they're issued, the cuts will have a muted impact on home equity loan rates. So, while it may be tempting to wait for today's average 8.11% rate to fall to 8.00% or 7.95% later this year, the difference in your repayments will be negligible – and you'll delay paying for the expenses you need the home equity loan funds for right now.
By locking in a rate now, you won't need to worry about rate changes ahead
Interest rate cuts appear certain at this point in October, but that trajectory can change. Inflation and unemployment data, which influence the Fed's rate policy, have been stalled amid the government shutdown. And, depending on what's ultimately released, rate policy could stagnate. Potentially, rates could even tick upward again.
But by locking in a low home equity loan rate now, you won't have to worry about rate stagnation or increases in the future. Plus, if rates decline significantly in the future, you could always refinance at that point. In the interim, however, you'll have a locked, affordable rate and will have the funds the loan comes with readily available.
The bottom line
The decision to borrow money with a home equity loan is a personal one, depending on multiple factors that will need to be weighed carefully. Still, with rates here near a two-year low, home equity levels near a record high, and the fixed-rate nature of the product effectively eliminating concerns about an evolving rate climate, this could be the ideal way for homeowners to borrow money right now. Just be sure to calculate your potential repayment costs with precision to best determine long-term affordability.
Edited by Angelica Leicht
