We’ll see slight improvement in home equity rates in 2024. — Greg McBride, Bankrate Chief Financial Analyst

The rates on home equity lines of credit (HELOCs) and home equity loans remain unattractively high, even as mortgage rates nosedived in late 2023. The average rate on a HELOC was 10.12 percent as of Dec. 27, while home equity loans cost more than 9 percent, according to Bankrate’s national survey of lenders.

Better news could come in 2024, says Greg McBride, Bankrate’s chief financial analyst, who expects HELOCs to average 8.45 percent by the end of the year, and home equity loans to average 8.5 percent.

“Homeowners are sitting on a record amount of home equity, but borrowing costs have been at multi-decade highs,” says McBride. “We’ll see slight improvement in home equity rates in 2024.”

HELOCs: Get ready to shop for bargains

You can take out a HELOC or home equity loan for any reason, provided you qualify. Many homeowners use them to fund renovations or consolidate higher-interest debt.

HELOCs, in particular, are adjustable-rate loans that mirror Federal Reserve policy. They often come with a very low introductory rate. Connexus Credit Union in late December, for instance, was advertising introductory HELOC rates of 5.99 percent — a full 4 points below the national average at that time.

McBride expects the Fed to cut rates twice in 2024, but for HELOC rates to drop more dramatically.

“A decline in HELOC rates will be spurred primarily by Fed rate cuts,” says McBride, “but declining mortgage rates and ongoing economic growth will bring about more introductory rate offers on HELOCs, so the average HELOC rate will be down more substantially than two Fed rate cuts would indicate.”

If you’re thinking of opening a HELOC, you might wait for lenders to start dangling sweeter deals next year. Meanwhile, if you’ve got a HELOC at 9 percent or 10 percent, 2024 could be a good time to refinance to a lower rate.

Americans collectively held nearly $33 trillion in home equity as of the third quarter of 2023, according to the Federal Reserve.

“The average homeowner with an outstanding home equity line is not going to see their rate go down that much. Their rate will mimic whatever the Fed does,” says McBride. “Existing borrowers should be on the lookout for lower rate and introductory offers as it could present an opportunity for homeowners to refinance a HELOC rate still stuck in double digits.”

Home equity loans: Less to get excited about

Home equity loan rates in 2024 won’t see as much of a decrease as HELOC rates, according to McBride.

“Rates for home equity loans, the less popular fixed-rate installment loan alternative to a HELOC, will see modest declines in 2024, tilted toward the back half of the year,” says McBride.

Still, this type of loan could make sense for you if you know exactly how much you’ll need and can score a below-average rate. Ultimately, a second mortgage remains a higher-cost form of debt — for now.