Why are HELOC rates so much lower than home equity loans now? Experts weigh in

Home equity line of credit (HELOC) rates have dropped considerably over the past few months, hitting two-year lows this year. Today’s average rate of 8.04% marks a nearly two-percentage-point decline since September 2024 when rates sat near 10.00%. 

HELOC rates have fallen below home equity loans, too. As of today, the average HELOC rate is around 0.4 to 0.5 percentage points lower than the average 10- and 15-year home equity loan rates. 

So, for homeowners who want to tap into their equity — $313,000, on average, according to a recent survey — HELOCs provide an affordable solution. But it’s not just their current affordability that makes HELOCs a good choice for homeowners with equity; flexibility is a key feature, too. HELOCs allow borrowers to draw from their line of credit as needed (up to their limit) rather than getting the entire amount upfront like a home equity loan. 

HELOCs give borrowers several advantages over home equity loans, in general, but it’s their low rates compared to home equity loans that make HELOCs an especially appealing option right now. Why is it that HELOC rates have fallen so far below home equity loan rates? We talked with experts to find out the answer. 

See how much of your home equity you could borrow with a HELOC here.

Why are HELOC rates so much lower than home equity loans now?

To better understand why HELOC rates are lower than home equity loans, it helps to know how HELOC rates work compared to home equity loans. Home equity loans use a fixed rate that stays the same throughout the life of your loan. HELOCs use a variable rate. That means that your lender adjusts your rate (typically monthly) based on several factors, including any changes to the Federal Reserve’s benchmark rate and the lender’s prime rate.

With that in mind, one reason that HELOC rates are as low as they are is that Fed rate cuts at the end of 2024 trickled down to the prime rate that lenders use to calibrate their HELOC rates.

“The market determines rates, and short-term mortgages (HELOCs) tend to offer better rates,” says Rose Krieger, a senior home loan specialist at mortgage lender Churchill Mortgage. “HELOC rates are based on the prime rate, so because that has fallen in recent months, so too have rates on HELOCs.”

The prime and Fed rates are just two drivers of HELOC rates, though. Other factors, such as the state of the economy, impact HELOC rates, too. If lenders aren’t sure about where the economy is headed, shorter-term lending options like HELOCs may get lower rates, says Sebastian Frey, a broker associate at real estate firm Compass Silicon Valley. 

“I would have to say the HELOCs are shorter-term than the HELOANs,” Frey notes. And, Frey says, “shorter-term debt is more in demand right now rather than longer-term debt.”

With several factors pushing down HELOC rates past home equity rates and the average home equity level above $310,000, now is a good time to act. 

See how low your HELOC rate could be here.

The bottom line

HELOC rates are as low as they are right now due to multiple factors, including Fed rate cuts at the end of 2024. Those cuts impacted (along with other factors) HELOCs and home equity loans, bringing HELOC rates down near 8.00%. If you’re ready to tap into your home equity through a HELOC because of their low rates but are curious about home equity loans, Frey suggests comparing fees and considering a HELOC’s flexibility as you make your decision.

“I would … look at the fees between the loans and see what the difference in fees are,” he says. “Generally speaking, I would recommend a HELOC because you can draw down incrementally rather than in one big sum.”