Home equity lines of credit (HELOCs) and home equity loans are closing out 2025 at their lowest rates in three years, offering homeowners unprecedented access to the $36 trillion in equity locked within American homes. For those considering a second mortgage, the timing may not get much better.

The Numbers at Year's End

As of December 31, 2025, the national average HELOC rate stands at 7.44%, while home equity loans average 7.59%. These figures represent a significant decline from the peaks seen in 2024, when HELOC rates exceeded 9.5% for many borrowers.

The decline has accelerated in recent months:

  • Three months ago: Average HELOC rates were near 8.5%
  • One year ago: Rates exceeded 9% for most borrowers
  • Today: Some lenders are offering rates approaching 6%

The downward trajectory directly follows the Federal Reserve's rate-cutting campaign. After three rate cuts in late 2024 and three more in 2025, the federal funds rate now sits at 3.50%-3.75%, down from 5.25%-5.50% at its peak.

Why HELOCs Respond Faster Than Mortgages

Unlike traditional 30-year mortgages—which have been stubbornly resistant to Fed rate cuts—HELOCs and home equity loans have a more direct relationship with Fed policy. That's because these products are typically pegged to the prime rate, which moves in lockstep with the federal funds rate.

The current prime rate of 6.75% forms the basis for most HELOC pricing. Lenders add a margin (typically 0.5% to 2%) to the prime rate to determine individual borrower rates, meaning strong-credit borrowers can now access home equity at rates barely above 7%.

The $36 Trillion Opportunity

The Federal Reserve estimates that American homeowners have accumulated $36 trillion in home equity—a staggering figure that represents decades of appreciation and mortgage payments. Much of this equity remains untapped, sitting idle in properties across the country.

For homeowners considering accessing this wealth, the math has become significantly more favorable. Consider a $100,000 HELOC at various rate levels:

  • At 9.5% (2024 peak): $791 monthly interest-only payment
  • At 7.44% (today's average): $620 monthly interest-only payment
  • At 6.5% (best available rates): $541 monthly interest-only payment

The difference between peak rates and today's averages represents savings of over $2,000 annually on a $100,000 credit line.

HELOC vs. Home Equity Loan: Which Is Right for You?

With both products now priced attractively, homeowners face a choice between two distinct structures:

HELOCs offer:

  • Variable rates that fluctuate with market conditions
  • Flexible draw periods where you borrow as needed
  • Interest-only payment options during the draw period
  • The ability to reuse credit as you pay it down

Home Equity Loans offer:

  • Fixed rates locked in for the life of the loan
  • Predictable monthly payments
  • Lump-sum disbursement at closing
  • Protection against future rate increases

Given the Fed's signals that further rate cuts may be limited in 2026, locking in a fixed-rate home equity loan could provide protection against future rate volatility. However, HELOCs offer more flexibility for homeowners who aren't sure exactly how much they'll need to borrow.

What Homeowners Are Using the Money For

The most common uses for home equity borrowing include:

  • Home improvements: Renovations that add value back to the property
  • Debt consolidation: Paying off higher-interest credit cards or personal loans
  • Education expenses: Funding college costs at potentially lower rates than student loans
  • Emergency reserves: Establishing a credit line for unexpected expenses
  • Investment opportunities: Though this carries significant risk

The Risks to Consider

Despite attractive rates, home equity borrowing carries meaningful risks:

  • Your home is collateral: Failure to repay could result in foreclosure
  • Variable rate exposure: HELOC rates could rise if the Fed changes course
  • Reduced equity cushion: Borrowing reduces your ownership stake and buffer against price declines
  • Extended debt burden: Turning short-term expenses into 20-year debt may not be wise

How to Get the Best Rate

To secure the most competitive rate on a HELOC or home equity loan:

  • Check your credit score: Borrowers with scores above 740 qualify for the best rates
  • Calculate your loan-to-value ratio: Most lenders cap total borrowing at 80-85% of home value
  • Compare multiple lenders: Rate spreads can exceed 2% between lenders
  • Consider credit unions: Many offer rates below national averages
  • Negotiate closing costs: Some lenders waive fees for larger credit lines

With rates at three-year lows and $36 trillion in equity available for tapping, 2025's final days offer a compelling opportunity for homeowners to consider their options. Whether you need funds for home improvements, debt consolidation, or simply want an emergency credit line in place, the math has rarely been more favorable.