Comparing HELOC and home equity loan rates now: What experts say borrowers should know

Home equity line of credit (HELOC) and home equity loan interest rates have been trending downward in 2025, creating valuable borrowing opportunities for homeowners in an otherwise high-rate climate. That means homeowners have a couple of affordable options for tapping into their home's equity right now.

Before deciding between the two, though, it helps to understand each option clearly. HELOCs currently offer lower starting rates but because the rates are variable, they can change over time. Home equity loans lock in fixed rates for the entire term. As a result, your choice between the two could save — or cost — you thousands, so it's important to understand how to compare the rates on these options before making a decision.

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What experts say about comparing HELOC and home equity loan rates now

Below, mortgage experts explain how today's home equity borrowing options work, what's driving current rate trends and which factors impact your total costs. 

Why are HELOC rates lower than home equity loans now?

HELOC rates are lower than home equity loans because they're tied to the U.S. Prime Rate, which follows the Federal Reserve's actions, experts say. 

"Borrowers are still feeling the benefit of the Fed's three rate cuts in 2024, which lowered rates by a full percentage point," says Debbie Calixto, sales manager at mortgage lender loanDepot. These cuts have made HELOCs especially attractive for homeowners tapping their equity.

Home equity loans, on the other hand, follow a different pattern. 

"[They're] fixed-rate, so they don't budge as fast," says Steven Glick, a licensed mortgage loan officer and director of mortgage sales at HomeAbroad, a real estate investment fintech company. Long-term bond markets and broader economic forecasts drive these rates instead of immediate Fed decisions.

Lenders also build in a premium for the rate stability that home equity loans provide. This makes them more expensive upfront, but protects borrowers from future rate increases that HELOC users might face.

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Will home equity loan rates fall below HELOCs this year?

"I don't see home equity loan rates slipping below HELOCs this year," says Glick. "The Fed's hinting at a couple more rate cuts, but nothing drastic. Inflation's hanging around 2.7%, and jobs are still solid." 

Since HELOCs respond to Fed changes, they'll maintain their rate advantage if these cuts materialize.

Ari Rastegar, CEO of real estate investment firm Rastegar Capital, agrees with Glick's forecast, saying it's unlikely home equity loan rates will fall below HELOCs in 2025. 

"HELOC rates are nimble, adjustable and built to move," Rastegar says. 

Fixed-rate home equity loans move more slowly because lenders factor in long-term economic predictions.

How does your financial profile affect your rate options?

"Besides market conditions, your financial profile plays the biggest role in determining your rate and how much equity you can access through a HELOC or home equity loan," says Calixto. 

To assess risk, lenders examine your credit score, debt-to-income (DTI) ratio and current mortgage balance. Generally, higher risk means higher rates and potentially smaller loan amounts.

The impact on your costs can be significant. 

"If your credit's stellar — say, 740 or higher — you're likely getting the lowest rates, maybe shaving half a point off the average," notes Glick. "A solid DTI, under 43%, tells lenders you can handle the payments, so they'll offer better terms." Borrowers with weaker profiles might still qualify but may pay 1% to 2% more in interest.

What costs should you consider beyond the advertised rates?

Experts recommend evaluating the total cost of the loan before choosing a home equity product.

Here are the key costs to watch for:

• Origination and closing fees: "One-time charges for processing the loan, underwriting and finalizing paperwork can add up quickly," warns Rastegar.
• Appraisal costs: Most lenders require a home appraisal to determine property value. You can expect to pay this out of pocket.
• Annual maintenance fee: "Some HELOCs ding you $50 to $100 a year just to keep it open," cautions Glick.
• Inactivity fees: Glick notes that a few HELOCs charge a $25 to $100 fee if you don't tap the line enough.
• Minimum draw requirements: Some HELOCs force you to borrow a minimum upfront. This means you'll pay interest on it even if you don't need the full amount.
• Early termination penalties: Closing your account before a specified period could trigger fees.
• Discount points: "Securing a lower interest rate may involve paying for points to 'buy down' the rate," says Calixto.

The bottom line

While HELOCs currently feature lower starting rates, they come with uncertainty. "With a variable rate, there's always the risk that your rate could increase over time, along with your monthly payment," Calixto cautions. In contrast, a fixed-rate home equity loan keeps your payments predictable throughout economic shifts.

But both options come with unique benefits and use cases. So, before committing to one, Calixto advises consulting a trusted mortgage professional to discuss your options and gain clarity around fees. They'll help you look beyond today's rates to find a good balance between immediate savings and long-term financial security.