The Fed could cut interest rates this week. Here's what happened to home equity loan rates the last two times it did that.

Millions of American borrowers stuck with high-interest-rate offers may have reason to be optimistic this week. The Federal Reserve is poised to cut interest rates again at the conclusion of its meeting tomorrow, its final one of 2025. Currently at a range between 3.75% to 4.00%, another cut on Wednesday would bring that range down to 3.50% to 3.75%. While just a small cut in and of itself, it will mark the third such reduction in the last four months, offering some financial breathing room to borrowers who have otherwise had scarce, affordable options to choose from.

Home equity loans, however, have been one of the more affordable alternatives. Interest rates here are significantly lower than what can be secured with personal loans. And they're almost three times less expensive than what borrowers would encounter if they swiped their credit card, as that product has an average rate sitting near a record high.

Still, with your home functioning as collateral in these exchanges and the risk of foreclosure clear if you're ultimately unable to make repayments, it's critical that you know what you're getting involved with in advance. To better understand the affordability of a home equity loan interest rate this week, then, it helps to know how rates here responded the last two times the Fed cut rates. Below, we'll break down everything to know to better inform your next steps.

Start by seeing how low your current home equity loan rate offers are here.

What happened to home equity loan rates after the last two Fed rate cuts?

The Federal Reserve has cut interest rates twice this year, once on September 17 and again on October 29. And while the central bank doesn't directly dictate what home equity loan rates lenders will offer homeowners, it's a large driver behind where rates head. Following the September rate cut, the average 5-year home equity loan rate declined nine basis points to 8.19%, according to Bankrate data released on September 24.

The rate then ticked up slightly in the week after, but continued a gradual decline throughout October. By the time the Fed moved to cut interest rates again on October 29, the average 5-year home equity loan rate was just 8.02% and two weeks later (after the cut reverberated throughout the wider borrowing landscape), it dropped again, this time to just 7.99% on November 12, according to Bankrate. And it's been at or around that point since.

In other words, a third 2025 Fed rate cut this week could easily be the motivating factor to cause home equity loan rates to fall once again. And with some lenders preemptively "pricing in" a reduction before it's even formalized, many home equity borrowers shouldn't be surprised if they're already in the running to lock in a low home equity loan rate right now. Still, lenders respond differently to Fed rate cuts, so it's worth taking the time to shop around to see who is actually offering the best rate and terms versus who just may appear to be on paper.

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Is a HELOC the better home equity borrowing tool now?

The average home equity line of credit (HELOC) interest rate is now just 7.81%, considerably lower than the median home equity loan rate. And the HELOC rate is variable, meaning that it will change each month, which is a major advantage now as rates consistently cool. 

But that lower rate right now could easily become the higher one in the future should market conditions change. The home equity loan rate, meanwhile, will remain the same until refinanced. Borrowers will need to weigh the lower HELOC rate and the potential volatility it comes with, then, against the slightly higher but fixed home equity loan rate to better decide which is the more affordable, secure option. 

There's no uniform answer here, as this will largely depend on the borrower profile. But with rates on both products dropping for much of this year, it's worth analyzing both closely now before rushing to open either.

The bottom line

Home equity loan interest rates, already on a slow but steady decline over the past year or so, dropped after both the Fed's September and October 2025 rate cuts. That means that they can potentially fall again this week, too, if recent history is a reliable indicator. But with HELOC rates lower and better positioned to respond to additional Fed rate reductions, homeowners should do their due diligence and compare both home equity borrowing products closely before acting. The good news is that rates on both are considerably more affordable than they were in recent years. Now, borrowers just need to decide which low-rate option makes the most sense for them.