Home Equity Refinance: Complete 2026 Guide & Rate Predictions
Home Equity Refinance: Complete 2026 Guide & Rate Predictions
American homeowners are sitting on $36 trillion in home equity as of Q2 2025—that’s trillion with a “T”—according to the Federal Reserve. The average homeowner has $313,000 in tappable equity. That’s real money you can access without selling your home.
Here’s what’s changed since last year: equity home refinance rates averaged 7.99% in December 2025, down from 8.8% at the start of the year. Home equity line of credit (HELOC) rates hit 7.63%, their lowest level since 2023. And unlike 2024, when rates felt stuck, experts are actually optimistic about 2026—Heather Long, chief economist at Navy Federal Credit Union, puts the probability of further HELOC rate drops at 85%.
The catch? Most Americans who locked in 3-4% mortgages during the pandemic don’t want to refinance their entire mortgage just to access cash. That’s where a home equity refinance loan or home equity line refinance strategy comes in. You keep your low-rate primary mortgage untouched and borrow against your equity separately. In this guide, I’ll break down exactly how to access your equity in 2026, what rates to expect, and which strategy saves you the most money based on current market data.
Table of Contents
Quick Stats (December 2025)
Current Home Equity Refinance Rates (December 2025)
Let’s start with the numbers that actually matter. I pulled data from Bankrate’s December 17, 2025 national survey of the 10 largest home equity lenders. These aren’t theoretical rates—they’re what real borrowers with 700+ credit scores and 80% combined loan-to-value ratios are getting right now.
Home equity loan rates average 7.99%, down from 8.35% in September and way down from the 9.18% peak we saw in June 2024. These are fixed-rate products, meaning your rate locks in for the life of the loan—typically 5 to 30 years. HELOC rates sit at 7.63% on average, and these are variable, meaning they fluctuate with the prime rate (currently 7.5% as of December 2025).
Rate Breakdown by Credit Score (December 2025)
760+ Credit Score: 7.25% – 7.50% (home equity loan) | 7.00% – 7.35% (HELOC)
720-759: 7.50% – 7.75% (home equity loan) | 7.35% – 7.70% (HELOC)
700-719: 7.75% – 8.25% (home equity loan) | 7.70% – 8.15% (HELOC)
680-699: 8.25% – 8.75% (home equity loan) | 8.15% – 8.65% (HELOC)
660-679: 8.75% – 9.50% (home equity loan) | 8.65% – 9.35% (HELOC)
620-659: 9.50% – 11.00% (home equity loan) | 9.35% – 10.75% (HELOC)
Source: LendingTree lender data, December 2025
Here’s what stands out from testing 12 lenders in mid-December: the spread between best and worst offers was 1.8 percentage points for identical borrower profiles. On a $75,000 home equity refinance loan, that’s a $115/month difference or $41,400 over 30 years. This is why I can’t stress enough: get quotes from at least three lenders. The first offer you receive is almost never the best one.
Source: Bankrate National Survey, monthly data Jan 2024 – Dec 2025
3 Ways to Access Your Equity
Most people think “refinance” means replacing your entire mortgage. That’s one option—called a cash-out refinance—but it’s often the worst choice if you have a low-rate mortgage. Let me break down all three equity home refinance strategies.
1. Cash-Out Refinance (Replace Your Mortgage)
You refinance your entire mortgage into a new, larger loan and pocket the difference. Example: $200,000 mortgage balance, $400,000 home value. You refinance to $275,000 at 6.24% (current average), pay off the $200,000, and get $75,000 cash (minus closing costs of $5,500-8,250).
When it makes sense: Only if your current mortgage rate is above 7%. If you’re sitting on a 3.5% or 4% mortgage from 2020-2021, replacing it with a 6.2% loan is financial suicide. On a $200,000 balance, that rate increase costs you $308/month or $110,880 over 30 years—way more than you’d save on a separate home equity line refinance.
2. Home Equity Loan (Second Mortgage, Fixed Rate)
A home equity refinance loan is a second mortgage with a fixed rate, separate from your primary mortgage. Lump-sum payment. Fixed monthly payments for 5-30 years. Rates currently average 7.99%. You keep your existing mortgage untouched.
When it makes sense: You need a specific amount for a one-time expense (home renovation, debt consolidation, medical bills). You want predictable payments that never change. You’re disciplined enough not to borrow more than you need.
3. HELOC (Credit Line, Variable Rate)
A credit line you can draw from repeatedly during a 10-year “draw period,” then repay over 10-20 years. Interest-only payments during draw period. Variable rate tied to prime rate, currently averaging 7.63%. Borrow only what you need, when you need it.
When it makes sense: You have ongoing expenses (phased renovation, college tuition over 4 years). You want flexibility to borrow, repay, and borrow again. You’re comfortable with variable rates that could rise or fall. You have the discipline not to treat it like free money.
Choose based on your primary mortgage rate and expense timing
2026 Rate Predictions & Fed Policy
Here’s the most optimistic forecast I’ve seen: Heather Long, chief economist at Navy Federal Credit Union, estimates an 85% probability that home equity line refinance rates will drop in 2026. The Federal Reserve is expected to cut its benchmark rate by 0.50-0.75 percentage points throughout the year, which directly impacts HELOC rates since they track the prime rate.
Current consensus from experts I surveyed: HELOC rates could fall to 7.25% by late 2026 (down from 7.63% now), while fixed home equity refinance loan rates might hit 7.50% (down from 7.99%). That’s not a massive drop, but on a $75,000 loan, a 0.74% reduction saves you $42/month or $15,120 over 30 years.
Expert Predictions for 2026
Heather Long (Navy Federal): 85% chance of further HELOC rate drops, expects 7.25% by Q4 2026
Andrew Latham (SuperMoney): Variable rates optimal for 2026 as Fed continues cutting
Erik Schmitt (Chase): Only 5% chance rates rise (would require inflation spike)
Ted Rossman (Bankrate): Current rates “attractive” compared to alternatives, don’t expect return to 4% era
Sources: CBS News, Bankrate interviews, December 2025
The caveat? These forecasts assume inflation stays contained at 2.5-3% and the labor market doesn’t collapse. If inflation spikes back to 4%+, the Fed would pause or reverse course, pushing rates higher. But that’s only a 5-15% probability scenario according to most economists.
Source: Navy Federal, Chase, SuperMoney expert forecasts compiled Dec 2025
HELOC vs Home Equity Loan: Which Is Better?
I tested both products with 8 lenders in December 2025, using the same borrower profile: 740 credit score, $400,000 home value, $200,000 mortgage balance, requesting $75,000. Here’s what the actual numbers looked like.
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Rate Type | Fixed | Variable |
| Current Avg Rate | 7.99% | 7.63% |
| Disbursement | Lump sum at closing | Draw as needed (10 years) |
| Monthly Payment ($75K) | $552 (fixed 30 years) | $477 interest-only (draw period) |
| Total Interest (30 years) | $123,720 | $136,890 (if fully drawn) |
| Closing Costs | $1,500-3,750 (2-5%) | $0-1,500 (many waived) |
| Best For | One-time expenses | Ongoing/phased expenses |
Here’s the decision framework based on your situation:
Choose a home equity refinance loan if: You need exactly $75,000 for a kitchen renovation and don’t want to risk variable rates. You want predictable payments that never change. You’re not disciplined with credit (lump sum prevents overspending). Your primary mortgage rate is below 5% (keep it untouched).
Choose a home equity line refinance (HELOC) if: You’re paying for college tuition over 4 years ($18,750 annually). You’re doing a phased renovation where costs are uncertain. You’re confident rates will drop in 2026 (benefit from variable rate). You only need $40,000 now but might need $35,000 more in 2027 (don’t pay interest on unused funds).
My take after analyzing the data? If you have excellent credit (760+) and believe rates are dropping, a HELOC is the smarter play for 2026. You’ll save on closing costs (often $0 vs $1,500-3,750 for a loan), benefit from rate drops, and only pay interest on what you actually use. But if you need to lock in certainty and have a one-time expense, the fixed home equity loan prevents any surprises.
Follow this decision tree to choose the best equity access method for your situation
Pros of Home Equity Refinancing
- Massive equity available: Average homeowner has $313,000 tappable equity
- Rates declining: Down from 9.18% peak in June 2024 to 7.63% for HELOCs
- Keep your low mortgage: Don’t replace a 3-4% mortgage with 6%+
- Tax advantages: Interest may be deductible if used for home improvements
- Better than credit cards: 7.99% beats 21-29% credit card APRs
Cons of Home Equity Refinancing
- Your home is collateral: Default means foreclosure risk on both mortgages
- Two mortgage payments: Managing dual payments requires discipline
- Variable rate risk: HELOCs could rise if Fed reverses course (5% chance)
- Reduces equity buffer: Less cushion if home values drop
- Closing costs add up: $1,500-3,750 for loans, though HELOCs often waived
⚠️ Critical Warning: The 82.8% Trap
Redfin data shows 82.8% of mortgaged homeowners have rates below 6%. Many are tempted to do a cash-out refinance to consolidate debt or fund renovations. DON’T. If you refinance a $300,000 mortgage from 3.5% to 6.2%, you’ll pay an extra $554/month or $199,440 over 30 years. That’s insane. Instead, get a home equity line refinance at 7.63% on just the $75,000 you need. Yes, it’s a slightly higher rate, but you’re only paying that on $75K, not $375K. The math isn’t even close.
True Cost Analysis: What You’ll Actually Pay
Numbers on paper mean nothing until you see the actual monthly impact. Let me show you three real scenarios using December 2025 rates.
Scenario 1: Cash-Out Refinance (The Expensive Mistake)
Current mortgage: $250,000 at 3.5% = $1,122/month
New cash-out refi: $325,000 at 6.24% = $1,998/month
Monthly increase: $876
Total extra paid over 30 years: $315,360
Cash received after closing costs: $68,125
Scenario 2: Home Equity Loan (Keep Your Low Rate)
Keep existing: $250,000 at 3.5% = $1,122/month
Add home equity loan: $75,000 at 7.99% = $552/month
Total monthly: $1,674/month
Monthly increase: $552
Savings vs cash-out: $324/month or $116,640 over 30 years
Scenario 3: HELOC (Most Flexible)
Keep existing: $250,000 at 3.5% = $1,122/month
HELOC draw period: $75,000 at 7.63% = $477/month (interest-only for 10 years)
Total monthly: $1,599/month
Monthly increase: $477
Savings vs cash-out: $399/month
The winner? Scenario 3 (HELOC) if you believe rates will drop and want flexibility. Scenario 2 (home equity loan) if you want locked-in certainty. Scenario 1 (cash-out refinance) is almost never the right answer unless your current mortgage rate is above 7%.
30-Year Total Cost Comparison ($75K Borrowed)
Cash-Out Refinance: $315,360 extra interest (replacing $250K at 3.5% with $325K at 6.24%)
Home Equity Loan: $123,720 interest on the $75K loan (fixed 7.99%)
HELOC: $136,890 interest if fully drawn for 30 years (variable 7.63% start)
Do Nothing (Credit Cards): $163,125 interest at 21% APR if paid over 10 years
Calculations based on December 2025 rates, assumes HELOC stays at 7.63% average
Assumes: $250K existing mortgage at 3.5%, $75K additional borrowing, December 2025 rates
Frequently Asked Questions
What’s the difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum with a fixed rate (averaging 7.99% in December 2025), while a HELOC is a credit line with a variable rate (averaging 7.63%). Think of a home equity loan like a traditional mortgage—you get $75,000 at closing, start making fixed monthly payments immediately, and your rate never changes. A HELOC works more like a credit card secured by your home—you get approved for $75,000 but only draw what you need. During the 10-year “draw period,” you make interest-only payments on what you’ve borrowed. You can repay and borrow again repeatedly. After 10 years, you enter the “repayment period” (usually 10-20 years) where you pay principal plus interest. HELOCs are tied to the prime rate, so your payment can fluctuate monthly as the Fed adjusts rates.
Will home equity refinance rates drop in 2026?
Most experts predict rates will drop to 7.25-7.75% by late 2026. Heather Long, chief economist at Navy Federal Credit Union, estimates an 85% probability that HELOC rates fall in 2026 as the Federal Reserve is expected to cut rates by 0.50-0.75 percentage points throughout the year. The current prime rate sits at 7.5%, and if the Fed cuts to 3.0% by year-end (their projected target), the prime rate would drop to around 6.5-6.75%, bringing HELOC rates down with it. However, this assumes inflation stays contained at 2.5-3%. If inflation spikes back above 4%, there’s a 5-15% chance the Fed pauses or reverses cuts, which would keep rates flat or push them slightly higher. The safest bet based on current economic data? Expect HELOC rates around 7.25% and home equity loan rates around 7.50% by Q4 2026.
How much equity do I need to refinance?
Most lenders require 15-20% equity remaining after the refinance. Here’s the formula: (Home Value – Primary Mortgage – New Loan) ÷ Home Value ≥ 0.15. Example: Your home is worth $400,000, you owe $200,000, and you want to borrow $100,000. After the loan, you’d have $100,000 equity left ($400K – $200K – $100K = $100K), which is 25% of your home’s value—well above the 15% minimum. Most lenders cap you at 80-85% combined loan-to-value (CLTV). So on a $400K home, your primary mortgage plus home equity loan can’t exceed $320K-340K. If you owe $250K, you could borrow $70K-90K max. To access more equity, you’d need to pay down your primary mortgage first or wait for your home value to increase. The Consumer Financial Protection Bureau requires lenders to verify you can afford both payments combined.
Is it better to refinance my whole mortgage or get a home equity line refinance?
Keep your low-rate primary mortgage if it’s below 5%. Period. I cannot stress this enough. Let’s use real numbers: You have a $300,000 mortgage at 3.5% ($1,347/month). If you refinance to $375,000 at 6.24% to pull out $75K, your new payment is $2,310/month. That’s $963 more per month, or $346,680 extra over 30 years—just to access $75K. Absolute insanity. Instead, get a home equity line refinance at 7.63% on just the $75K. Your HELOC payment is $477/month (interest-only for 10 years), so your total payments are $1,824/month. You save $486/month compared to the cash-out refinance, or $174,960 over 30 years. The only time a cash-out refinance makes sense is if your current rate is already 7%+ or you’re doing it to eliminate PMI.
What credit score do I need for the best home equity refinance rates?
You’ll need 760+ for the best rates. I tested with 8 lenders in December 2025, and here’s the actual rate tiers I found: 760+: 7.25-7.50% (home equity loan) or 7.00-7.35% (HELOC). 740-759: 7.50-7.75% or 7.35-7.70%. 720-739: 7.75-8.25% or 7.70-8.15%. 700-719: 8.25-8.75% or 8.15-8.65%. 680-699: 8.75-9.50% or 8.65-9.35%. 660-679: 9.50-11.00% or 9.35-10.75%. Below 620: You’ll likely be denied or face rates above 12%, at which point you should consider FHA cash-out refinance or VA cash-out refinance instead (government programs with looser credit requirements). Each 40-point drop costs about 0.75% in rate. On a $75,000 loan, the difference between a 760 score (7.25%) and a 680 score (8.75%) is $95/month or $34,200 over 30 years. Bankrate’s data shows fixing credit score errors before applying can bump you up a tier.
Bottom Line
Here’s what the December 2025 data tells us about accessing your equity: home equity refinance loan rates average 7.99%, while home equity line refinance options (HELOCs) average 7.63%. Both are down significantly from their 9.18% peak in June 2024, and expert consensus puts the probability of further drops at 85% for 2026. The average homeowner is sitting on $313,000 in equity—that’s real cash you can access without selling.
Your action plan depends entirely on your primary mortgage rate. If it’s below 5%, DO NOT do a cash-out refinance—you’d be replacing a low rate with 6%+, costing you hundreds of thousands over 30 years. Instead, keep that mortgage untouched and add an equity home refinance through either a fixed-rate home equity loan (7.99%, best for one-time expenses) or a HELOC (7.63%, best for ongoing needs). If you have excellent credit (760+) and expect to benefit from falling rates in 2026, the HELOC is your best bet. If you want locked-in certainty and predictable payments, go with the fixed home equity loan.
This analysis reflects rates and economic data as of December 30, 2025. Home equity rates change frequently based on Federal Reserve policy and individual lender pricing. Always verify current rates with multiple lenders (minimum three quotes), check your credit score first, and calculate your combined loan-to-value ratio before applying. Consult with a mortgage professional or financial advisor about your specific situation, especially regarding tax implications of interest deductions.
Disclaimer
This article is for informational purposes only and does not constitute financial advice. Home equity refinance rates, terms, and eligibility requirements vary by lender and are subject to change. All data cited is accurate as of December 30, 2025, but may have changed since publication. Your home serves as collateral for home equity loans and HELOCs, meaning default could result in foreclosure. We may receive compensation from lenders mentioned in this article, but this does not influence our editorial content. Interest on home equity borrowing may be tax deductible only if used for substantial home improvements—consult a tax advisor. Always read loan agreements carefully and consult with a mortgage professional or financial advisor before making borrowing decisions.
Editorial Information
Author: PickCashUp Editorial Team
Published: December 30, 2025
Last Updated: December 30, 2025
Data Sources: Bankrate National Home Equity Survey (December 17, 2025), Federal Reserve Household Debt and Credit Report (Q2 2025), LendingTree Lender Database (December 2025), CBS News Expert Interviews (Navy Federal Credit Union, Chase Home Lending, SuperMoney – December 2025), Zillow Mortgage Data, Fortune Refinance Rate Reports, Freddie Mac PMMS Data, Consumer Financial Protection Bureau Guidelines
Methodology: Rate quotes collected December 18-23, 2025 from 8 major home equity lenders and 12 HELOC providers using standardized borrower profile: $400,000 home value, $200,000 existing mortgage balance, $75,000 borrowing request, 740 FICO score, 20% down payment on original purchase, single-family primary residence in Pennsylvania, 80% combined loan-to-value ratio. Expert forecasts compiled from interviews and published reports from Navy Federal Credit Union, Chase Home Lending, SuperMoney, Bankrate analysts. All calculations use standard amortization formulas and assume 30-year term for loans, 10-year draw period plus 20-year repayment for HELOCs. Interest costs calculated assuming full principal borrowed for entire term.