Should you lock in a home equity loan rate before the October Fed meeting?
It's an exciting time to be a borrower.
Mortgage interest rates are down, hovering around a three-year low. And home equity line of credit (HELOC) rates are down too, having recently broken under the 8% mark. Rates on home equity loans are also lower than they've been, thanks to market conditions and a lower Federal funds rate.
And all three could soon be even lower, if the Federal Reserve continues its recent rate-cut campaign, which seems inevitable for when the central bank meets again at the end of October. Another rate cut is also looking increasingly likely for the bank's final 2025 meeting in December, too.
With the Fed's October meeting just days away, however, and with home equity levels particularly robust now in many parts of the country, potential borrowers may be wondering about their home equity loan options. Specifically, is it worth locking in a low home equity loan rate now, before the meeting? Or will these homeowners be better served by delaying an application? Below, we'll detail what these owners should be considering now.
Start by seeing how much home equity you'd be eligible to borrow here.
Should you lock in a home equity loan rate before the October Fed meeting?
There's a very good chance the Fed will cut rates again when it concludes its next meeting on October 29 (the CME Group's FedWatch tool has a cut listed at a 98.9% certainty as of October 21). And while Fed rate cuts and home equity loan rate reductions don't always line up neatly, the former can cause the latter, perhaps even before a reduction is formally announced.
That's because home equity loan lenders don't need to wait for the Fed to adjust their offers to borrowers. So today's home equity loan rates, averaging between 8.13% and 8.28%, depending on the repayment term, can fall further next week or in the days surrounding a cut. Locking in a rate now, then, may not be beneficial. At the same time, some lenders may have already "priced in" the October Fed rate cut, so the rates you see listed later this month or in early November may not be materially different from what they are right now, anyway.
To better exploit this evolving but cooling interest rate climate, then, prospective home equity borrowers may want to consider a HELOC as a natural alternative.
HELOCs have variable interest rates, which are better for responding to a cooler rate climate in a way that a home equity loan, with its fixed-rate nature, cannot. In other words, if you lock in a home equity loan rate today, and rates fall next week, you won't be able to take advantage (without refinancing and paying refinancing costs). But HELOC rates change monthly for borrowers, which could mean paying less in November than you do in October, assuming the Fed cuts rates on October 29.
Additionally, HELOCs are already more affordable than home equity loans, with the former coming with an average rate of just 7.84%. So, even if rates were to fall in equal measure in response to the Fed's actions, a HELOC will still be the cheaper way to borrow equity now. That noted, HELOC rates can rise as easily as they can fall, so some volatility will need to be accounted for should you proceed with this over the fixed-rate home equity loan. Take the time to compare both before proceeding.
Compare your HELOC and home equity loan options here now.
The bottom line
Locking in a home equity loan rate now, before the Fed's October meeting, should likely only be done in anticipation of a rate hike (which seems unlikely) or via the preference of the borrower for a fixed-rate borrowing product. If you want to exploit predicted rate cuts to come, however, are comfortable with a variable-rate product and want to pay as little as possible to borrow this equity now, a HELOC could be the better option. With each borrower's needs and goals being different, however, it can be helpful to compare both closely before taking action with either.
