The simple version

If you have a HELOC or are thinking about one, your borrowing cost is higher today than it was two years ago, because HELOC rates move in lockstep with the federal funds rate, which the Federal Reserve set at 3.50% to 3.75% at its April 29, 2026 meeting and has held there since. The average HELOC rate as of mid-June 2026 is hovering near 7.5% to 8%, depending on your credit profile and lender. That is not a small number when you are drawing against your home to fund a renovation, consolidate debt, or cover a large expense.

Home equity loans, which carry a fixed rate, are priced differently but are also elevated, typically running between 7% and 8.5% for well-qualified borrowers right now. Whether you choose the variable-rate HELOC or the fixed-rate home equity loan, you are paying more than you would have in 2021 or 2022, and the mechanism that explains why matters for any decision you make about tapping your home equity.

The numbers

• The federal funds target rate is 3.50% to 3.75% as of June 2026, set at the April 29, 2026 FOMC meeting and held since (Federal Reserve, federalreserve.gov).
• The prime rate, which is the benchmark HELOC rates are priced off of, equals the federal funds rate plus 3%, putting it at 6.50% to 6.75% in June 2026 (Federal Reserve, federalreserve.gov).
• Average HELOC rates for well-qualified borrowers run approximately prime plus 0.5% to 1.5%, putting the effective rate range near 7.00% to 8.25% in mid-2026 (Federal Reserve consumer credit survey, federalreserve.gov).
• Average home equity loan rates for 15-year terms have tracked between 7.0% and 8.5% for most of 2025 and into 2026 (Federal Reserve H.15 selected interest rates, federalreserve.gov).
• In January 2022, the prime rate was 3.25%, meaning HELOC rates for the same borrower profile were roughly 4% to 5%. The rate on the same HELOC today is roughly 3 percentage points higher (FRED, fred.stlouisfed.org/series/DPRIME).
• Home equity outstanding across U.S. households exceeded $11 trillion as of late 2025, meaning rate changes affect a large share of American household balance sheets (Federal Reserve Flow of Funds, federalreserve.gov).

Why HELOC rates move with the Fed and home equity loan rates do not

A HELOC is a variable-rate product. The rate you pay floats, typically set at prime plus a margin that your lender locked in at origination. When the Fed raises or holds the federal funds rate, the prime rate follows the same day, and your HELOC rate adjusts on its next billing cycle. You did not refinance. You did not sign anything new. Your rate just changed.

A home equity loan is different. It is a closed-end, fixed-rate installment loan. You borrow a lump sum, get a fixed monthly payment, and your rate does not move after closing. The rate you qualify for at origination reflects the market at that moment, which right now is elevated. But once you close, you own that rate for the life of the loan. The tradeoff is that you cannot draw down and pay back repeatedly the way you can with a HELOC.

The practical difference: if the Fed cuts rates in 2027, your HELOC rate drops automatically and your payment falls. Your home equity loan rate does not change. You would have to refinance to capture a lower rate, which costs time and closing fees. Neither product is universally better. The right one depends on how long you need the money, how predictable your income is, and whether you expect rates to fall before you pay it back.

One structural risk with HELOCs that gets buried in the fine print: most have a draw period (often 10 years) followed by a repayment period. During the draw period you may only be required to pay interest. When the repayment period starts, your minimum payment can jump significantly because you are now paying principal too, all at whatever the prevailing rate is at that time. Borrowers who opened HELOCs in 2015 and 2016 hit their repayment period right as rates were rising. That timing risk is real and worth understanding before you sign.

The Real Cost lens on a $50,000 HELOC draw at today's rates

The rate difference between what you would have paid in early 2022 and what you pay now is not abstract. Run the math on a $50,000 draw, which is a common amount for a kitchen renovation or a bathroom remodel, and the cost difference becomes concrete.

• At 4.5% (approximate 2022 HELOC rate): interest-only payment on $50,000 is about $188 per month, or $2,250 per year.
• At 7.75% (approximate mid-2026 HELOC rate): interest-only payment on the same $50,000 is about $323 per month, or $3,875 per year.
• The monthly difference is $135. The annual difference is $1,625. Over a 10-year draw period, that gap is $16,250 in additional interest paid on the same $50,000.
• If you are in a 22% federal income tax bracket, mortgage interest on a HELOC used for home improvement may be deductible, which reduces the after-tax cost. At 22%, the effective after-tax rate drops to roughly 6.0%, but you still pay $16,250 more over 10 years at today's rate versus 2022 before any tax offset.

That $16,250 is money that does not go toward the principal. It does not build equity. It goes entirely to the cost of borrowing. For a homeowner with substantial equity, that cost may still make sense relative to a personal loan or credit card. But it is not a cheap option by historical standards, and the decision should be made with the full number in view, not just the monthly payment.

What this means

For homeowners between 45 and 65, who have the most accumulated equity and are also most likely to be weighing renovation costs, college tuition bridges, or debt consolidation, the current rate environment changes the math significantly. Tapping home equity still makes sense in some situations. It does not make sense by default just because the equity is there. A HELOC at 7.75% is still cheaper than a credit card at 20%, but it is meaningfully more expensive than a first mortgage locked in years ago, and it puts your home on the line as collateral.

The broader pattern here is that the Fed's rate decisions do not just affect car loans and credit cards. They run through the prime rate directly into any variable-rate product tied to your home. If and when the Fed begins cutting rates, HELOCs will get cheaper, which is one reason some homeowners are choosing to wait. Whether waiting is the right call depends on how urgently you need the funds and where rates actually go, neither of which anyone can predict with confidence.

What this is NOT

This is not a prediction of where HELOC rates go next month or next year. This is not advice on whether you should open a HELOC, take out a home equity loan, or wait for rates to fall. This is not a recommendation about any specific lender, product, draw amount, or repayment structure. This is not a statement about whether tapping home equity is right for your financial situation. This is not tax advice on the deductibility of home equity interest; consult a tax professional for guidance specific to your situation.

Sources

• Federal Reserve, current and historical federal funds rate: https://www.federalreserve.gov
• FRED, prime bank loan rate (DPRIME) historical series: https://fred.stlouisfed.org/series/DPRIME
• Federal Reserve, H.15 selected interest rates (home equity loans): https://www.federalreserve.gov
• Federal Reserve, Flow of Funds (household balance sheets, home equity outstanding): https://www.federalreserve.gov