What could happen to HELOC rates this May?

When it comes to borrowing from your home equity, home equity lines of credit (HELOCs) remain one of the most flexible and appealing options to consider. Homeowners can utilize their home equity and turn it into a line of credit that can be used to cover costs or consolidate high-interest debt, especially in times of economic uncertainty. 

One of the primary benefits is that HELOC rates tend to be more affordable than other borrowing options. You can expect an average annual percentage rate (APR) of about 21% on credit cards and 12% on personal loans right now. Alternatively, average HELOC interest rates hit a two-year low recently and are now sitting at just under 8% on average. 

So, in terms of borrowing options, the low average rates make home equity lines of credit the more affordable choice in today’s market. However, it’s important to note that HELOC rates are variable, so they fluctuate over time. We spoke to home lending experts on what could happen to HELOC interest rates this May. 

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What could happen to HELOC rates this May?

In May, several factors can contribute to whether there will be a HELOC rate drop or not — one of which is the Federal Reserve’s upcoming decision on its benchmark rate.

The Federal Reserve’s Federal Open Market Committee did not convene in April but is slated to meet again on May 6 and 7. What happens at that meeting could play a major role in whether there will be a HELOC rate decline. 

“HELOCs are based on the prime rate. So when the Fed moves the federal funds rate, the prime rate also moves in lockstep with the federal funds rate,” says Melissa Cohn, regional vice president at William Raveis Mortgage. “While there are calls for the Fed to cut rates in May, which would help HELOC rates, there’s no guarantee that that’s going to happen.”

The Federal Reserve still plans on cutting the federal funds rate at some point in 2025, but when that is exactly is yet to be determined. So far in 2025, there has been no movement after several rate cuts toward the end of 2024. 

The Federal Reserve kept rates unchanged after its March meeting, in part due to economic uncertainty and persistent inflation.  So, while borrowers with variable rates, like those who borrow with HELOCs or other loan products, are hoping for further cuts, it might not happen in May. 

“My gut is that the Fed is going to hold in May and so the HELOC rates will remain the same,” says Cohn.

If things head in the other direction, here’s what you can likely expect. 

“So if the Feds lower rates…they should lower by a quarter percent. Then that will affect the prime [rate] and then interest rates will go down,” says Jill Carrade, a mortgage broker at Pro Mortgage.

However, there’s no sure bet on anything right now, so the Federal Reserve could very well keep rates the same in May. Some predict higher chances of a rate cut in June instead. 

“I think that right now we are in a territory that we’ve never experienced before. And not only just what’s going on in the market, but we have so many other factors that are changing,” says Carrade. “I think anything is possible and we cannot predict right now and no expert has been getting it right.”

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The bottom line 

In May, current and prospective HELOC borrowers may not see rates drop if the Federal Reserve doesn’t make any moves. However, a HELOC is still a solid alternative to many other financing options. 

“I think that a HELOC can be an excellent tool, especially if you have a low rate on your first mortgage,” says Cohn.

You can find the lowest HELOC rates by shopping around. The key is to research a minimum of three HELOC lenders. Before doing so, check your home equity amount and your HELOC eligibility before moving forward. If you’d prefer a fixed-rate home equity product, you can look into home equity loans. Home equity loan interest rates stay the same during your repayment, so they are more predictable. 

Before you consider tapping any home equity, review your budget and have a purpose and a plan for the loan. That way, you can get the funds you need, but don’t put your home at risk of foreclosure.