Will home equity loan and HELOC rates drop this June? Experts weigh in

CBS News

4 days ago

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Home equity borrowing rates have remained flat recently, but when could they decline again?
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The latest inflation reading showed a decline to 2.3%, heading closer to the Federal Reserve's 2% target. But that good news may be short-lived and ongoing economic uncertainty threatens to upend that downward trajectory. The Federal Reserve kept the federal funds rate paused as it believes the risks of higher unemployment and inflation have increased. With no rate cuts, the borrowing landscape continues to be costly with elevated interest rates.
While home equity borrowing options are generally a lower-cost alternative to credit cards or personal loans, home equity lines of credit (HELOCs) and home equity loans aren't immune to the effects of these broader economic decisions. A couple of months ago, home equity line of credit interest rates were below 8% and were slightly lower than home equity loan rates. Now HELOC rates are ticking up and closing that gap.
Average HELOC rates are now at 8.14%, according to the most recent Bankrate data. Average home equity loan interest rates now stand at 8.24%. With so much uncertainty on the horizon, where will home equity borrowing rates land in June? We asked some experts for their insight and their thoughts surrounding a potential rate drop in the month.
See how low a home equity loan rate you could qualify for here.
Will home equity loan and HELOC rates drop this June?
Home equity loans and HELOCs are useful borrowing tools for homeowners, but have different interest rate structures. Home equity loans, which offer borrowers a lump sum, have the benefit of a fixed rate that remains stable throughout repayment. HELOCs, on the other hand, allow borrowers more flexibility to draw on funds as needed and have variable rates that adjust monthly for borrowers. When interest rates fall, homeowners can save on interest charges and reduce the cost of borrowing. But holding out hope for home equity borrowing rates to drop may come with a side of disappointment.
"At this point I do not anticipate that the Fed will make any changes at their meeting in June and we can expect that the prime rate will remain the same," says Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage. "Home equity loans tend to have a fixed rate, while a HELOC's rate will adjust monthly based on prime rate. For the month of June, these rates should remain stable – unlike first mortgage rates. Those react in tandem with movements in 10-year treasury bond yields, which have spiked again."
Learn more about your current home equity loan options here.
While home equity borrowing rates probably won't decrease in June, they could instead remain flat. In other words, while rates may not be getting better, they may not get worse either.
"I anticipate rates to hold steady with a risk of increases. I know the Fed has plans to lower rates, but those plans were implemented before the tariffs and the inflationary effects they will cause," says Adam Ailion, associate broker at RE/MAX Town and Country.
The Fed is closely monitoring the situation, upholding a wait-and-see approach. These latest developments put the Fed in a tough position, trying to maintain its dual mandate focused on price stability and maximum employment. Some are anticipating rate cuts getting pushed to later this year, but no one knows for certain what will happen and how things will change over time.
At the same time, while home equity borrowing rates are likely to stay in the same range in June, some situations could cause rates to increase further.
"I think if we started to see inflation tick back up, you'd see the Fed increase rates to try and get inflation back under control…Hopefully, the effects of the tariffs will be short-lived, but I think that cat is already out of the bag and prices are already increasing," says Ailion.
That probability of that is still up in the air, but for now, borrowers looking into home equity loans or HELOCs can likely expect rates to stay roughly the same.
"I just really don't see any type of interest rates increasing too much. They're just not coming down," says Christopher Thomas, mortgage loan originator at Iris Mortgage.
The bottom line
If you're looking into home equity borrowing products, you may not see substantial rate changes anytime soon. Despite the fact that interest rates remain higher than many borrowers want, they're still down from the past year. Home equity loans and HELOCs can still provide more competitive rates than credit cards or even personal loans, if you want to pursue a home renovation or consolidate debt. However, you could still put your home on the line, so it's important to be a responsible borrower.
"Be comfortable with the total amount you're borrowing. Be comfortable with the monthly payment and how it fits into your budget," says Thomas. Understand the pros and cons of each type of home equity product and comparison shop with home lenders to find the optimal rates and terms.