Michael Micheletti 
Key takeaways:
- Interest rates, and by extension, mortgage rates, will likely hold steady through 2026.
- Persistent inflation, tariff questions and the war with Iran contribute to uncertainty in the months ahead.
- Homeowners are more focused on “getting by” than “getting ahead” right now, but need to find ways to take care of important repairs and maintenance. Home equity agreements can be good options for those who don’t want to replace their current mortgage or take on another monthly principal and interest payments.
Moderation, uncertainty and consumer behavior are defining the outlook for interest rates – and their impact on American homeowners – for the balance of 2026. To understand why, let’s first look at two key indicators: the federal funds rate and the 10-year Treasury yield.
The Federal Reserve’s Influence
Everyone is always talking about the “Fed” and the changes it makes – or doesn’t make – to interest rates. Understanding how the federal funds rate works, and how it affects mortgage and equity-based loan rates, can be helpful.
The Federal Open Market Committee, serving as the policy-making body of the Federal Reserve (Fed), sets the federal funds rate. This is the interest rate banks charge each other for short-term loans to meet their reserve requirements.
The federal funds rate is a big part of the foundation of monetary policy in the United States, and a major driver of economic activity. It’s important to understand, however, that this rate does not touch consumers directly. When it comes to mortgages, and products like home equity loans (HELs) and home equity lines of credit (HELOCs), the Fed does not set rates. But adjustments to the Fed rate do heavily influence these other rates.
Understanding the 10-Year Treasury Yield
Another key indicator in the world of interest rates is the 10-year Treasury. This debt security, issued by the U.S. government, pays a fixed rate of interest and matures in 10 years.
Importantly, it serves as a global benchmark for interest rates (and economic confidence). A rising 10-year Treasury yield usually means higher borrowing costs for consumers and businesses. A decreasing rate lowers borrowing costs, which tends to stimulate the economy. Rates on mortgages and other loans are related to movements in the 10-year Treasury.
Moderate-Rate Environment Likely
All of this leads to what I’d call a moderate-rate environment. As of now, the Treasury yield is expected to remain fairly constant for the rest of the year. The Fed has again announced it would hold its benchmark interest rate steady. By extension, rates on mortgages, HELs and HELOCs should remain steady, with the 30-year fixed-mortgage rate hovering near the 6% mark. Both Fannie Mae and the Mortgage Bankers Association expect that rates will sit at 6% for most of 2026 and 2027, and from my vantage point, I believe that is indeed what we’ll see.
However – and that’s a big “however” – that could all change in an instant.
Uncertainty Looms Large
We all may be tired of the word, but the reality is that there is still a great deal of uncertainty with geopolitical dynamics, unpredictable policy changes, and financial market activity. And amid persistent inflation, we can’t predict the costs of goods and services.
As events unfold, markets will adjust, and we could see changes to interest rates. We don’t know what will happen with tariffs, nor the judicial review and litigation surrounding them. The war with Iran and the situation throughout the Middle East opens new global questions. If the conflict lasts into the fall, as some reports have suggested, it’s likely we won’t see any movement on interest rates from the Fed. By extension, that again means little or no movement on mortgages and other loans.
Consumers Staying Put
All of this results in a very “sticky” consumer: unlikely to change behaviors. We see that explicitly in results of our recent survey, in which we found that 75% of homeowners say they have no plans to buy or sell a home this year. They’re also very rate-sensitive, reporting that they would need to see the 30-year fixed-rate mortgage rate fall below 4% to consider buying a new home or refinancing. Given the expectation that rates will continue to stay around 6%, homeowners aren’t going anywhere.
Logically, this makes sense. If you look at the cost increases in healthcare, insurance premiums, child care, property taxes, groceries, utilities and more, you can see that most consumers are just trying to deal with these day-to-day expenses. “Getting by” is replacing “getting ahead” for many, many people right now.
HEL and HELOC Activity
Typically, we see an increase in home improvement spending in the summer, some of it financed with home equity. But this year, we may see a subdued second and third quarters for HELs and HELOCs.
The same economic concerns that are weighing on consumers are directly affecting home improvement retailers. Home Depot recently reported nearly flat comparable sales growth for both the quarter and full fiscal year. The company’s CEO talked about how continued consumer uncertainty is leading homeowners away from investing in larger projects that would require larger purchases – purchases that generally would lead many homeowners to HELs or HELOCs for funds.
Plus, homeowners – even those with significant home equity – have expressed strongly that they can’t handle another monthly payment. In our survey, we found that almost 1 in 5 (19%) would rather double their commute time than take on another monthly payment. Eleven percent would even prefer taking a pay cut to adding a payment.
What is a Homeowner to Do?
The economy is less about housing and more about trying to deal with costs right now. If a homeowner is micromanaging finances to the point of making decisions on whether or not to take out a loan or refinance based on small movements in interest rates, the best decision may be to hold off until they’re in a better financial position.
That said, if your home is in need of important repairs and maintenance, don’t put these off. Doing so will likely increase costs in the long run, and may affect your home’s functionality, livability, and even future marketability.
A home equity agreement (HEA) could be a good option for homeowners seeking funds for these and other needs, but who don’t want to replace their current mortgage or worry about monthly principal and interest payments. The HEA provides a straightforward path to home equity as a smart financial tool, helping many homeowners take care of today and build a foundation for the future.
Conclusion
Interest rates – including the federal funds rate, mortgage rates, and HEL and HELOC rates – are not expected to move much this year, although variables here at home and abroad could have unpredictable effects. Consumers will need to continue to focus on dealing with the costs of living and costs of homeownership.
