This article, written by Linda Bell and edited by Amelia Buckley, originally appeared in Bankrate on January 29, 2026.

The Federal Reserve’s interest rate decisions influence what you pay for variable-rate home equity lines of credit (HELOCs) and new home equity loans. Let’s break down how the Fed’s monetary policy affects how much it’ll cost you to borrow against your home.

Following a string of rate cuts near the tail end of 2025, the Federal Reserve held steady at its first meeting in January 2026. The central bank’s benchmark rate remains at a target range of 3.5-3.75%. The pause in rate cuts reflects ongoing uncertainty about the labor market and inflation.

“The Fed has been assigned two goals for monetary policy, maximum employment and stable prices,” said Fed Chairman Jerome Powell at a post-meeting press conference. “We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored.”

How do Federal Reserve decisions affect HELOCs and home equity loans?

When the Fed changes the federal funds rate (the interest rate banks charge each other for overnight loans to meet reserve requirements) it affects other benchmarks, including the prime rate. The prime rate usually runs three percentage points above the fed funds rate and tends to move in step with it.

Lenders directly tie the rates on HELOCs and home equity loans to the prime rate. Because HELOCs often have variable interest rates, the cost of borrowing can rise or fall with the prime rate and fed funds rate, making your HELOC more or less expensive.

Home Equity Loans are fixed rate installment loans, so they aren’t as deeply impacted by Fed decisions. If you are considering getting a new home equity loan now, however, the rates you see are influenced by the fed funds rate.

How soon do HELOC rates change after a Fed meeting?

It happens relatively fast. Homeowners that currently have a HELOC can expect their interest rate to change quickly and payments to adjust within a month or two after a Fed rate change. Current home equity loan borrowers won’t see any difference, as their rate and payments are fixed. However, the rates advertised for new home equity loans will reflect any Fed change fairly quickly, as well.

“For new offers on both products, rates could change right away after the Fed makes a move,” says Ted Rossman, senior industry analyst at Bankrate. “It’s up to the lender, but when the market changes, they tend to adjust pretty quickly.”

If you already have a HELOC but do not currently have a balance, rising rates won’t affect your wallet all that much. However, if you do have a balance, you’ll have a larger monthly payment to cover, usually within the next two billing cycles. The rate for the repayment phase is typically fixed, and is determined by interest rates at the end of the draw period.

Key Fed moves that impacted home equity rates 

Home equity rates typically follow the Fed’s interest rate moves, but influence HELOC rates more directly. During the COVID pandemic, the Fed slashed rates to near zero in an effort to stabilize the economy. As a result, HELOC rates dropped sharply in 2021, reaching record lows, falling below 4%.

Is now a good time to get a HELOC or home equity loan?

Home equity loan and HELOC rates are at three-year lows, making home equity borrowing more attractive. Stephen Kates, financial analyst at Bankrate, puts the decline in context.

“Their rates still sit far above risk-free cash, Treasury yields or fixed-rate mortgages,” Kates says. “These products often add a second lien on the home, which is a riskier prospect for the lender in the case of a foreclosure. Even in a year with falling rates, the rates remain higher than other forms of secured lending.”

Kates also notes that many homeowners today, especially those who purchased five or more years ago, are sitting on substantial home equity stakes.

“Tapping that equity can be an excellent way to fund planned projects or large, one-time expenses,” he says. “Before taking on a home equity loan or line of credit, however, it is important to remember that this equity should not be used to support unsustainably high lifestyle expenses. These loans are secured by the home itself, and falling behind on payments can ultimately put the property at risk.”

 

About Bankrate
Bankrate has been a trusted source of financial guidance since 1976, helping people make informed money decisions with free tools, expert articles, and comparison resources. The site connects consumers to trusted ways to save, borrow, and thrive by offering objective information on mortgages, credit cards, loans, savings and more, backed by award‑winning editorial content and financial calculators used by millions each year.

About First Community Bank and Trust
First Community Bank and Trust is a privately-owned bank. Established in 1916 First Community Bank and Trust has been serving Beecher, IL, Peotone, IL and the surrounding communities for over 109 years. Our commitment to providing the best banking products and services is matched only by our outstanding customer service. We offer traditional community banking services, including mortgage, consumer, and commercial lending, as well as state of the art electronic banking services.

Press Contact:
Steve Koehn, Senior Vice President
First Community Bank and Trust
(708) 946-2246

 

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