How to find the lowest home equity borrowing rates this October, according to experts

September brought good news for borrowers. The Federal Reserve conducted its first rate cut of the year, making the cost of borrowing less expensive. While a range of factors influence home equity borrowing rates, they generally move in the same direction if there's a rate cut or hike to the federal funds rate. 

Despite the welcome change, economic uncertainty continues as inflation inched upward in August to 2.9% year-over-year, after coming in at 2.7% in July. The Federal Reserve is set to meet at the end of October and current estimates show a high probability of another rate cut, according to the CME Group's FedWatch tool. That could have a positive impact on home equity borrowing rates. 

So if you're a homeowner who wants to consolidate debt, renovate your home, or cover a surprise expense, now could be a good time to tap home equity without selling your home. Still, you want to find the most affordable rates. We spoke to mortgage and home lending professionals about how to get the lowest home equity borrowing rates this October. Below, we'll detail their recommendations.

Start by seeing how low your current home equity loan rate offers are here.

How to find the lowest home equity borrowing rates this October

Using your home equity as a borrowing vehicle can be a smart move. Matched against alternatives like credit cards or personal loans, home equity loan interest rates are much more attractive. HELOC interest rates can be even more competitive, as they're variable and likely to respond positively to a cooling rate climate. Even so, there are essential things to consider and do to find the lowest home equity borrowing rates this October. 

Know the average home equity borrowing rates 

Home equity borrowing options include a home equity loan and a home equity line of credit (HELOC). Home equity loans give borrowers access to fixed-rate financing and a lump sum. HELOCs, on the other hand, have variable rates and can be drawn upon multiple times during the draw period. To find the lowest home equity borrowing rates, it's key to know what a "good" rate is considered to be now. 

"Depending on the loan term, depending on the combined loan-to-value, we're seeing rates anywhere from the 6s to the 8 percent range," says Evan Luchaco, home loan specialist at Churchill Mortgage.

Currently, average home equity loan rates with a 5-year term are 8.21%, typically ranging from 5.49% to 10.37%, according to Bankrate. In comparison, the current average HELOC rate is 7.89% with a range of 4.99% to 12.24%. Since HELOCs come with variable interest rates, they may fall further if the Fed delivers more rate cuts. 

Compare your home equity loan and HELOC rate offers here to learn more.

Understand what affects home equity borrowing rates

If you're searching for competitive home equity borrowing rates, it's important to understand what impacts them. The Federal Reserve is one such factor, as its actions can influence the direction of rates. 

"Home equity rates are tied to the prime rate, which is 3% higher than the Fed funds rate," says Shmuel Shayowitz, president and chief lending officer at Approved Funding, a licensed mortgage bank. 

Additionally, your loan amount and estimated equity are also major influences. "The biggest factor would be the loan-to-value, how much they're borrowing of the equity portion in their house. So that would be the most impactful to a rate," notes Shayowitz.

One factor that you can work on improving is your credit profile. "Credit score is probably the biggest variable that you can help by paying things on time, limiting your credit card usage," says Christopher Thomas, a mortgage loan originator and vice president at Iris Mortgage.

Luchaco recommends reducing your total debt-to-income ratio and paying off as much debt as you can. Your loan term and lender are two additional factors that can impact home equity borrowing rates. 

Evaluate your goals

From a mathematical standpoint, obviously, you want to secure the lowest home equity borrowing rates. But from a personal standpoint, it's important to evaluate your goals. 

"Sometimes, the best home equity loan is the one you can get right away because borrowers need funds immediately," says Luchaco. "Those types of programs that have a lot of automation built in can sometimes cost a little more, but the opportunity cost is worth it."

If you need a home equity loan quickly to fund a necessary home repair, the trade-off could be worth it. If your reason for borrowing isn't as time-sensitive, you may have more time to compare your options from various home lenders. 

Shop around 

You can find the lowest home equity borrowing rates this October, and in other months, by simply shopping around. Check out a range of home lenders to see prospective rates. You may even be able to get prequalified without hurting your credit score. If you have average or bad credit, your interest rates will typically be higher. 

It might be second nature to turn to your bank or existing mortgage lender. But researching all of your options will yield the best results. "Very often the small community banks or credit unions will be…much more aggressive than people realize," says Shayowitz. 

To find the best option, Shayowitz recommends using a mortgage lending professional who has access to these different options. 

The bottom line 

If you need to tap your home equity for whatever reason, you have options. Whether you choose a more predictable home equity loan or a more flexible home equity line of credit, you can turn the home equity you've amassed into a more affordable borrowing product. 

In the current rate environment, weigh getting a home equity loan with a fixed rate versus a home equity line of credit with a variable rate. If rates continue to fall, HELOC rates are likely to follow, but you'll be locked in with a home equity loan rate. However, the peace of mind and budget-friendly payments may make a home equity loan a better fit. 

If you're unsure, you can continue to work on your credit and debt-to-income ratio while you evaluate your needs and research options.