HELOC rates slip to 2025 low after Federal Reserve’s December cut

WASHINGTON — The average rate on a home equity line of credit (HELOC) has fallen to 7.44%, its lowest level of 2025, according to data provider Curinos. The decline follows the Federal Reserve’s quarter-point reduction of the benchmark rate on Dec. 10, which pushed the U.S. prime rate down to 6.75% and is beginning to filter through to variable-rate lending products.

Current landscape

The 7.44% average reflects applicants with credit scores of at least 780 and a combined loan-to-value ratio capped at 70%. While the rate is still well above pre-pandemic levels, it is markedly below readings seen earlier in the year and arrives just as many households weigh end-of-year spending decisions.

Homeowners collectively held nearly $36 trillion in equity at the close of the second quarter, Federal Reserve data show. With 30-year fixed mortgage rates lingering slightly above 6%, many borrowers are reluctant to part with primary mortgages obtained at 5%, 4% or even 3% during the past decade. A HELOC, which leaves the first mortgage intact, is one of the few tools that can unlock accumulated equity without refinancing into a higher rate.

How HELOC pricing works

Unlike first-lien mortgages, second-lien products such as HELOCs are priced on a margin added to an index, most commonly the prime rate. A lender adding a 0.75-percentage-point margin today would quote approximately 7.50%. Margins vary widely, giving lenders considerable discretion and making comparison shopping essential.

Introductory offers are common in the sector. These teaser rates typically last six to 12 months before converting to a variable structure tied to the index. For example, FourLeaf Credit Union is advertising a 5.99% rate for the first year on lines up to $500,000, after which the loan reverts to a floating rate. Borrowers are advised to weigh both the promotional and post-introductory terms, including lifetime rate caps and required draw amounts.

Factors that influence borrower rates

Individual pricing depends on:

• Credit profile: Higher scores and lower existing debt generally secure better margins.
• Combined loan-to-value (CLTV): Loans using less than roughly 80% of a home’s value tend to receive more favorable treatment.
• Credit-line size: Larger lines can command either discounts or premiums, depending on the institution’s appetite for exposure.
• Fee structure: Application, annual, and inactivity fees can offset a low headline rate.

Because variables differ by lender, published averages span a wide range—from just under 6% for top-tier borrowers to about 18% for higher-risk applicants.

Illustrative cost over time

Borrowing the entire $50,000 available on a hypothetical line priced at 7.50% would generate an interest-only payment of roughly $313 during the typical 10-year draw period. Once the account enters the 20-year repayment phase, principal amortization begins and monthly obligations rise. In addition, the floating rate can reset periodically—often monthly or quarterly—potentially increasing payments if broader market rates climb.

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The Consumer Financial Protection Bureau notes that many borrowers underestimate the impact of subsequent rate adjustments on long-term affordability. Its guidance on variable-rate products can be reviewed here.

Strategic considerations

For households with substantial equity and a low first-mortgage rate, the current environment offers a window to secure secondary financing at the most attractive terms seen this year. Funds can be tapped for home renovations, major repairs, debt consolidation or other short-term objectives. Financial planners, however, generally caution against using revolving equity credit for discretionary purchases unless a clear repayment plan is in place.

Borrowers evaluating a HELOC should:

• Obtain quotes from several institutions and compare both margins and lifetime caps.
• Review all fees, including origination, annual maintenance and early termination charges.
• Confirm draw requirements, as some lenders mandate an initial withdrawal that could add unnecessary interest expense.
• Assess whether a fixed-rate conversion option is available, which can provide payment certainty if rates rise.

While conditions remain favorable, the variable nature of most HELOCs means costs can increase if the Federal Reserve tightens policy again. Monitoring economic developments and maintaining flexibility in repayment plans can help mitigate that risk.

Crédito da imagem: Federal Reserve