HELOC rates are at their lowest level since 2023. Here's why (and what to do next).

Interest rates for home equity lines of credit (HELOCs) continued to decline this week, according to new data released by Bankrate. Now at an average of just 7.82%, rates here are the lowest they've been since March 2023, offering homeowners a cost-effective way to borrow in today's still largely elevated interest rate environment. That makes a HELOC cheaper than home equity loan counterparts and materially less expensive than personal loans and credit cards, both of which come with interest rates in the double digit range currently.

Still, this much lower interest rate comes with a catch: HELOC rates are variable and subject to change each month based on market conditions. It's critical that homeowners go into the process clear-eyed and informed.

But, what's driving this consistent drop in HELOC interest rates? And what should prospective borrowers do in response? Below, we'll break down the answers to both of these critical questions, which can help inform the next steps (or lack thereof) for borrowers.

Start by seeing how low your current HELOC interest rate offers are here.

Why are HELOC rates at their lowest level since 2023?

HELOC rates are impacted by multiple factors but the Federal Reserve's interest rate policy is one of the major ones. And the reality is that the central bank has now cut rates five times, dating back to September 2024. While some of those cuts, the latest being in the final days of October, only came in small, 25-basis-point increments, the movement is unmistakable. The interest rate climate overall is declining and that's felt more strongly with products that have variable rates, like HELOCs do. 

Just compare rates over the past year to see this play out. Right around the time the Fed embarked on its first rate cut since 2020, in September 2024, HELOC rates were just around 10%. Now, however, they're down by more than two full percentage points and they can drop even lower if the Fed proceeds with another expected rate cut when it meets for the final time in 2025 in December.

Against this backdrop, lenders are competing for business as more homeowners look to leverage their high home equity levels and low interest rate offers. That, in turn, leads to lower interest rates overall and, thus, a great opportunity for homeowners in need of extra financing.

See how much home equity you could leverage with a HELOC here.

What prospective HELOC borrowers should do next

Homeowners interested in pursuing a HELOC now should act aggressively but judiciously, too. To better exploit this timely opportunity, specifically, borrowers should do all of the following:

• Check their credit report: That average 7.82% HELOC interest rate? It will be reserved for borrowers with good credit scores and clean credit histories. So check both, now, before applying to make sure you're in good standing and do all you can to boost your score if you're not.
• Start shopping for lenders: You don't need to use your current mortgage lender to secure a HELOC and, in today's rate climate, you likely shouldn't as multiple others may offer more competitive rates and terms. You won't know about your other options, however, until you start shopping for lenders.
• Calculate the costs: Once you've boosted your credit score and found a lender you want to work with, it's important to take the time to calculate your potential HELOC costs. This isn't always easy to do thanks to that variable rate. So do the math against a variety of rates, both what's available right now and what can become available if rates go up or down. This will not only help you better determine long-term affordability but it will also provide you with peace of mind by knowing that you can afford the inevitable rate changes ahead.

The bottom line

HELOC rates are at a two-year low, thanks in large part to the Federal Reserve's extended interest-rate cutting campaign. Savvy borrowers can exploit this opportunity by checking their credit report, boosting their score, shopping for lenders and calculating their potential costs against a variety of potential future rates. The key, here, is to take an informed and strategic approach. It's taken two and a half years for HELOC rates to fall this low, so it's important to take advantage as best you possibly can right now.