HELOC and home equity rate forecast for 2026: Rates will drop to three-year lows

Homeowners tapping their equity in 2026 should expect borrowing to get more affordable, with rates reaching their lowest levels since at least 2023, according to Ted Rossman, Bankrate’s senior industry analyst. 

Rossman — who has covered the economy, interest rates, consumer debt and the Federal Reserve for more than a decade — forecasts home equity loan rates to average 7.75% in 2026 and home equity lines of credit (HELOC) rates to average 7.3%.

Federal Reserve policy is a key factor in determining rates for HELOCs and new home equity loans. Rossman expects three quarter-point rate cuts by the Federal Reserve in 2026 — enough to make home equity loans and HELOCs a more affordable prospect for borrowers. 

“We could see lower home equity rates than we’ve seen for most of the past few years, but nowhere near as low as you could have gotten in 2021 or 2022,” he says. “That is going to make home equity borrowing a more viable option for people.”

Bankrate’s 2026 home equity rate forecast and industry insights

If you’ve been feeling the strain of high home equity borrowing costs over the past few years, you’re not alone.

In 2021, during the pandemic, HELOC rates dropped to a historic low of 3.86%. On a $50,000 HELOC with a 10-year draw period and a 10-year repayment period, that meant paying only $161 in interest each month. But by 2025, even with rates at a nearly three-year low of 7.63%, interest on that same HELOC would now cost $318 a month — double what it was a few years earlier.

“Through the pandemic, we actually had really low rates on a lot of financial products,” says Rossman. “But then rates shot up so much in 2022 and 2023. That really closed the home equity borrowing window for a lot of people. Now, I feel like it’s coming open again, but it’s not as wide open as it was when rates were around 4%.”

While still higher than pandemic levels, next year’s lower home equity rates come at a helpful time for homeowners, many of whom are sitting on immense amounts of tappable equity — about $299,000 for the average borrower, according to property data firm Cotality. Couple that with high home prices and many homeowners’ ultra-low, pandemic-era mortgage rates, and more borrowers may choose to renovate their current homes rather than jumping into today’s tough housing market. 

However, several factors could make home equity rates more unpredictable in 2026. For one, changes are in store at the Fed next year, as Chairman Jerome Powell’s term ends, and President Trump has been vocal about pushing for deeper rate cuts. Inflation and the broader economy are also wild cards. If inflation reaccelerates, the Fed may hesitate to cut rates, even in a weak labor market. On the other hand, if the economy slips into a full-blown recession, home equity borrowing costs would likely drop more than anticipated. 

Home equity rates dropped to two-year lows in 2025

In 2025, home equity rates continued a decline that began in 2024, after a series of rate cuts by the Fed. That included an aggressive, half-point cut in September 2024. By the middle of 2025, HELOC and home equity loan rates were back below 8%, even as the Fed highlighted concerns about inflation. 

Just as in 2024, the Fed didn’t resume cutting rates until late in the year — a total of three reductions in 2025, as forecast by Bankrate at the end of last year. Once those reductions came, HELOCs and home equity loans began to drop more noticeably. HELOC rates in particular reached lows not seen in about three years.

What consumers need to know about home equity rates in 2026

In 2026, homeowners can expect home equity borrowing to become cheaper. Here’s how to navigate it based on your situation:

A homeowner with an existing HELOC: Remember that falling rates could mean lower monthly payments on variable-rate balance loans. When HELOC rates hit their all-time high of 10.16% in early 2024, a homeowner with a $50,000 HELOC was paying $423 in interest each month. Fast forward to 2026, if rates reach 7.3%, that same HELOC costs $304 in interest, a difference of more than $100 a month.  

A homeowner deciding whether to renovate or move: Even a slight drop in home equity rates could make tapping your home equity for renovations more appealing than taking out a new mortgage. After all, while mortgage rates could drop below 6% this year, the median sales price for an existing home was $415,200 in October, according to the National Association of Realtors. This number represented the 28th straight month of year-over-year price increases. 

A homeowner consolidating higher-interest debt with home equity: Using your home equity to pay off higher-rate credit cards can save you money on interest. While home equity borrowing isn’t low-cost debt, it’s still far more affordable than our projected average credit card rate of 19.4% or personal loan rate of 12% in 2026.

Throughout 2026, while home equity borrowing conditions should improve, rates could shift due to Fed policy, inflation and economic trends, as well as lender promotions. Use these tools to find out how rates impact your personal situation:

Home equity loan calculator – Use this calculator to estimate your monthly payments and potential savings.

Refinance calculator – Find out if refinancing your home equity loan makes sense. 

HELOC pay-off calculator – Track how rate changes can affect your payments and pay-off timeline.

• Methodology

  Our methodology for projecting where home equity and HELOC rates are headed in the year ahead combines expectations for the Fed’s benchmark interest rate and Treasury yields along with historical patterns in how banks and lenders price loans.

  To compile our forecast, we reviewed statements from Federal Reserve officials, documentation such as the Fed’s Summary of Economic Projections, investor expectations as measured by the CME FedWatch tool, Bankrate’s decades of interest rate information and other related resources.