Will HELOC rates fall after the Fed's June meeting?

CBS News

3 days ago

HELOC interest rates have declined significantly from where they were at the start of 2024.
Getty Images
Interest rates on home equity lines of credit (HELOCs) declined significantly between September 2024 and this spring, at one point dropping by more than two full percentage points. However, just when it seemed that HELOC rates were on a permanent decline, they ticked up again, moving into the 8% range after dropping into the 7% territory in early April. But after rising to 8.20% on May 21, they declined to 8.14% at the end of the month, and now, in June, some borrowers may be contemplating the potential for HELOC rates to fall again.
A lower interest rate, after all, is always important, but especially so when borrowing with a HELOC. Since the product comes with a variable rate that is subject to change monthly, changes here could make monthly repayments considerably more affordable or more expensive. And with another Federal Reserve meeting slated for June 17 and June 18, at which monetary policy and the future of interest rates will be determined, homeowners may be wondering about the potential for HELOC rates to fall yet again. Below, we'll break down what to consider and what to do to keep overall home equity borrowing costs low.
Start by seeing how low of a HELOC rate you'd qualify for here.
Will HELOC rates fall after the Fed's June meeting?
While predicting the future of interest rates is inherently difficult to do, the likelihood of average HELOC interest rates declining after the June Fed meeting will likely depend on what happens directly after the two-day meeting wraps up, not what actually happens in the meeting. At least this month. That's because the chances of a rate cut in the June meeting are low now.
According to the CME Group's FedWatch tool, the likelihood that the central bank will keep the federal funds rate unchanged between a range of 4.25% and 4.50% is over 95% as of June 3. And while that trajectory could change if other economic indicators released before then encourage a rate cut, the chances of it happening as quickly as this June are low.
But if comments made after the meeting by Federal Reserve chairman Jerome Powell indicate an imminent rate reduction (perhaps for when the Fed meets again in July), then rates on borrowing products like HELOCs could decline slightly. That's because lenders don't need to wait for a formal Fed rate action to adjust their offers to borrowers. If they feel that rate cuts are likely in the weeks ahead, they may start lowering HELOC rates preemptively. That said, if comments are geared toward higher rates for longer, HELOC rates could move up in a slight upward direction instead. Or they could remain static until further economic data is released.
Fortunately, current borrowers and those considering a HELOC, thanks to its affordability, won't need to take any action to secure a lower rate. Since rates here change independently, payments will decline if the Fed takes rate-cutting action. Refinancing, as would be needed with a home equity loan, for example, won't be needed. So if you're confident that the rate climate will continue to cool and want to be well-positioned to exploit that decline, a HELOC could be the smart way to borrow money right now.
Get started with a HELOC online today.
What about home equity loans?
The average home equity loan rate is now 8.24%, 10 basis points higher than the average HELOC rate, and while that may not seem advantageous on paper, it can still be the smart option for homeowners uncomfortable with a changing interest rate climate in today's economy. A home equity loan rate is fixed and will remain the same as it was when opened unless refinanced, giving homeowners peace of mind and predictable payments in an otherwise unpredictable economic climate. And, if rates were to decline materially at a later date, homeowners could always refinance and take advantage then. Just be sure to account for any home equity loan refinancing closing costs before making that move, as they could negate some of the savings you'd otherwise expect to see with a lower rate.
The bottom line
HELOC rates could decline after the Fed June meeting but they're more likely to remain around where they were at the beginning of June, barring any significant economic developments. But with rates here still much lower than most borrowing alternatives and with a comparable home equity loan rate available for homeowners concerned about rate volatility, there's likely a cost-effective way to borrow home equity now that won't also jeopardize your greater financial health. Just be sure to shop for rates, lenders and terms to find the optimal offer for your unique circumstances before formally applying.
Learn more about your HELOC and home equity loan options here.