Key takeaways
- The Federal Reserve Board voted in its September meeting to cut the federal funds rate to a target range between 4.0% and 4.25%.
- Homeowners may qualify for a home equity loan, HELOC, or cash-out refinance with a lower interest rate.
- If the time is right, you can shop around for a home equity loan and settle your home equity agreement early.
The Federal Reserve cut the federal funds rate at its September meeting by 25 basis points (.25%) to a federal funds target rate between 4% and 4.25%. It is the first rate cut of 2025.
The Fed signaled that more rate cuts are likely to come before the end of 2025, but economists expect corresponding mortgage and lending rates to fall only slightly further.
What does it mean for homeowners?
The federal funds rate is the rate that banks charge each other to borrow money. A decline in the federal funds rate makes it cheaper for banks to borrow and that trickles down to the rates banks charge businesses and consumers. For homeowners, the cut should ease the cost to borrow money to buy a house or tap home equity through a home equity loan or home equity line of credit (HELOC).
For homeowners with a home equity agreement (HEA), lower interest rates might make it more affordable to settle early with a home equity loan or HELOC. And settling an HEA through a sale could be more attractive as lower mortgage rates entice more buyers into the market.
Lower rates could entice homeowners to tap home equity
Now may be the right time for homeowners sitting on the sidelines to tap their home equity, data shows. Borrowing costs for HELOCs have decreased by 25% in the last year alone. That decrease happened before rate cuts made the cost even more attractive, according to the September 2025 ICE Mortgage Monitor.
For example, in early 2024, borrowing costs for $50,000 on a HELOC were right around $402. Now in the third quarter of 2025, the monthly payment is closer to $312. As rates edge lower, that will further improve affordability for homeowners who opt to access their equity with the ongoing monthly payment of a HELOC.
What’s next for mortgage rates?
Lenders had factored in the rate cut and had begun reducing mortgage rates in advance of the Fed meeting. But Dr. Orphe Divounguy, Senior Economist on Zillow’s Economic Research team, says mortgage rates may not move much more than they already have.
“With financial markets anticipating a more rapid easing of monetary policy than the Federal Reserve is likely to deliver, mortgage rates aren’t likely to fall much further,” he says.
Ultimately, Divounguy says incoming labor market and inflation data will determine the pace of that adjustment.
“If the pace of cuts slows in 2026, shifting expectations could send yields and mortgage rates back up,” he says.
Applications for mortgages jumped by nearly 30% earlier this month, indicating that lower rates are motivating some buyers. If you’re thinking of selling, you’ll likely need to review other factors beyond mortgage rates in your decision, including market conditions in your area.
Should you take advantage of lower rates?
Likewise, it’s not just the rate cuts that should make you consider a HELOC or home equity loan. If you’re a homeowner with an active HEA who is interested in settling through another form of financing, your credit or financial position may have substantially improved since you received your funds.
According to a recent survey commissioned by Unlock*, 76% of our homeowners say they’ve improved their financial position since receiving their funds.
- 70% have improved their credit score
- 62% have decreased their debt
- 56% have increased their savings
An improved financial position could help homeowners qualify for traditional lending, and reduced interest rates could help make lending even more affordable.
The best way to determine if you should take advantage of rate cuts is to shop around for a loan. Ask for a loan estimate from a handful of lenders and compare fees, loan costs, and other factors among lenders.
Use a new loan to settle your home equity agreement
Lower interest rates and lower borrowing costs may be particularly interesting to homeowners who wish to settle their Home Equity Agreements (HEAs) early. Unless you want to sell, you’re looking at three main options:
- Cash-out refinance: You qualify for a traditional mortgage and use excess funds to pay off your HEA and other mortgage (if applicable).
- Home equity loan or HELOC: You qualify for a home equity loan or HELOC and use funds to pay off your HEA.
- Settle with cash on hand: You have sufficient funds in savings to cover the final settlement costs or partial settlements, which are possible with Unlock’s HEA.
With improved rates, these may be more accessible than they have been in the past.
While every provider has their own process, you can read more about how to settle an Unlock HE
Conclusion
If you’re looking to access your home equity or settle your existing HEA through other financing options, the recent – and potential future – Fed rate cut could be good news. Rates may vary widely by lender, so it’s wise to shop around and factor in closing costs when comparing offers.
*Based on a survey commissioned by Unlock and conducted by Egg Strategy from April 23 to May 1, 2025, among 225 Unlock customers who received gift cards after participating. Self-reported results; individual experiences may vary.
FAQs
Q.When does the Fed announce rate cuts?
A. The Federal Open Market Committee (FOMC), which is the board responsible for determining rate cuts, has eight regularly scheduled meetings per year, approximately five to six weeks apart. During these meetings, members vote on increasing, decreasing, or maintaining the federal funds target rate. You can find dates for the remainder of 2025 here and also view the meeting schedule for 2026.
Q. How much did the Fed cut rates at its September meeting?
A. The Fed cut the federal funds rate by 25 basis points (.25%) to a target range between 4% and 4.25% in its September meeting. Lenders add overhead and profit on top of this amount to come up with the interest rates they offer borrowers. Homeowners can expect interest rates to vary by lender and individual qualifying factors.
Q. Should you wait for another rate cut to take out a home equity loan or cash-out refinancing?
A. The Fed signaled more rate cuts could be coming at the end of 2025; however, the cuts are not guaranteed, and it’s hard to predict how other economic conditions will impact rates. Instead, make the best decision you can with the circumstances and information available to you at the time.
