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.

Federal Reserve Jan. 2026 meeting

Following a string of rate cuts near the tail end of 2025, the Federal Reserve held the line on interest rates at its first meeting of 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.”

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.

Many home equity 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 come with fixed rates, so they aren’t as deeply impacted by Fed decisions. Once you close the equity loan, your rate won’t change. If you’re thinking of getting a new home equity loan now, however, the rates you see are influenced by the fed funds rate.

It happens relatively fast. Current HELOC borrowers can expect their interest rate 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 haven’t drawn from it, rising rates won’t affect your wallet all that much. If you do owe, you’ll have a larger monthly payment to cover, usually within the next two billing cycles. This applies whether you’re in the draw or repayment phase.