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Interest rates have remained stubbornly high over the past year as the Federal Reserve tried to . While rate cuts were, at one point, expected to happen starting in mid-2025, higher-than-expected inflation has led the Fed to keep the federal funds rate unchanged so far this year, impacting rates across many borrowing products.
However, change may be on the horizon, as analysts widely expect there to be a rate cut made during the Fed meeting this week, with projections from the indicating a near-certain possibility, with the potential for more in the future. But amid this high-rate climate, homeowners have had a lower-rate borrowing option to consider via their home's equity.
With rates averaging in the 8% range currently, many homeowners have tapped into their home equity by using low-cost borrowing options like and . But if you secured a home equity loan recently, you might eventually be able to save even more by refinancing your home equity loan to a loan with a lower rate. Should you do that once rate cuts are issued again, though?
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Home equity loans generally have fixed interest rates that insulate them from future rate increases. With a home equity loan, your rate remains the same until you refinance the loan. That can be a positive when rates are ticking upward, but it can also mean missing out on the savings from interest rate cuts.
That's why it can, in some cases, be a good idea to . There are still risks and costs involved with refinancing, though, so it doesn't always make sense. Here's who should and shouldn't consider refinancing their home equity loans now, experts say.
Here are some homeowners who may want to consider refinancing now, experts say.
The range between 8.23% and 8.38% currently, depending on the loan term. So, if you secured a home equity loan at around 9% (or higher) last year, you may be a solid candidate for refinancing your home equity loan. There's one benchmark that tends to be helpful.
"If the interest rate that they can get on a refinancing [loan] is at least a full percentage point lower than the rate that they have on their home equity loan, they should definitely consider refinancing it," says Melissa Cohn, regional vice president of William Raveis Mortgage.
Reducing your interest rate by a significant margin can make a meaningful difference in your monthly payments and the total interest over the life of the loan. While it's important to look at the interest rates you might get, that's not the only thing to consider as part of the equation.
"You always want to make sure that you are looking at your closing costs and what that loan is going to cost you if you're going to refinance. Math doesn't lie," says Jill Carrade, a mortgage broker at Pro Mortgage.
Whether it makes sense to refinance depends on the home equity loan refinance rates you qualify for based on , loan amount and other factors.
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The impact of a lower interest rate won't affect home equity borrowers equally. plays a major role as well, as that helps determine how much in total interest you pay over the life of your loan. If you have a six-figure home equity loan, refinancing may be a significant cost-saving measure.
"It may not make sense for somebody only borrowing $30,000 to take the time to refinance if the rate drops a half a point. But if you're refinancing a $400,000 loan, that makes a bigger difference in your monthly payment and it may make sense for you," says Mason Whitehead, branch manager and loan officer at Churchill Mortgage.
Homeowners with large home equity loan balances stand to benefit more from interest rate savings when refinancing, compared to low-balance borrowers.
If you'd like to change the terms on your home equity loan, refinancing may be a good option now. Through refinancing, you can opt for a longer term that lowers your monthly payments (and increases the amount of interest you'll pay).
For example, changing from a 10-year home equity loan to a 15-year home equity loan would extend the repayment schedule, allowing you to lower your monthly payment obligation. Conversely, you can shorten your term to pay off debt faster and pay less in interest overall.
Here are some examples when it might not make sense to refinance your home equity loan.
If the interest rate on your home equity loan is closer to the current average, you may want to think twice about refinancing your home equity loan right now. associated with home equity loans, so if you're refinancing, the interest rate reduction should be significant to make up for the extra costs. If you have already scored a decent rate, sticking to the course may be your best bet right now.
Given the extra costs that come with refinancing a home equity loan, Cohn notes the importance of evaluating when you'll break even. Let's say it takes 18 months after closing on the home equity loan refinancing to break even, but you plan on selling the home within the next year. In that case, it may not make sense to pursue refinancing.
"Then you're better off making the higher payment and keeping the money that you were going to use for closing costs in your pocket," says Cohn.
Another case where refinancing a home equity loan may not make sense is if you took out the loan several years ago and are paying it off quickly, Carrade says. In that case, it may make sense to continue with the forward momentum and avoid changing the terms of your loan — or paying the extra costs to refinance it.
Now that interest rate cuts are coming down the pike, refinancing your home equity loan could make sense in certain cases. "Every borrower has a different story…it really needs to make sense for your particular situation, so make sure you're working with somebody who's analyzing that for you and helping you with that," says Carrade.
Another option is to refinance into a HELOC instead of another home equity loan. HELOC rates may be slightly lower than a home equity loan, but the main difference is that they're variable instead of fixed. That means if rates continue to fall, your HELOC rates will likely follow as well. Whether you're using a home equity loan or HELOC to refinance, though, the key is to thoroughly research whether you'll get what you need from making this move.
