What are the Benefits of a HELOC in a Decreasing Rate Environment?

A HELOC (Home Equity Line of Credit) can be particularly beneficial in a decreasing interest rate environment for several reasons. First, let’s quickly review what a HELOC is and then look at how lower interest rates can work to your advantage in such a situation.

A HELOC is a loan that allows you to borrow against your home’s equity, known as an “open-ended line of credit.” This means you can access money when you need it instead of borrowing the whole amount at once, with your home acting as the collateral. Maybe you need to remodel your kitchen, replace windows for energy efficiency purposes, or even pay for college tuition or expenses. A HELOC helps by acting like a credit card – paying interest only on the amount you’ve used.  

At NSB, for instance, customers most commonly take advantage of a variable-rate HELOC where you’re provided with a maximum credit limit and, during a specified draw period (usually ten years), you can access funds from the line of credit as needed. During the draw period, you can choose to pay interest only on the funds used. As you pay back the line, that money becomes available for you to use again. After the draw period, the loan enters the repayment period (usually 10-15 years), and you’ll pay both principal and interest.

The reason HELOCs have become more popular to many people than refinancing or other options the past few years is that the interest rate on a variable-rate HELOC fluctuates. It isn’t fixed. A variable annual percentage rate (APR) means the interest rate and payment can go up or down on any advance you take, and because they’re secured loans, HELOCs typically end up with lower rates than other credit options.

With interest rates starting to come down, but mortgage rates lagging behind, homeowners are continuing to turn to HELOCs in 2025.

Essentially, HELOCs are relatively low-rate loans in decreasing rate environments.
Here are specific reasons that you might want to consider opening a HELOC in a decreasing rate environment:

Lower Interest Payments Over Time

Again, HELOCs have variable interest rates tied to the prime rate. So in a decreasing rate environment, your monthly interest payments decrease and more of your payment will go toward the principal, helping you pay off the balance quicker.

Reduces the Cost of Borrowing

Rates may continue dropping, making HELOCs less expensive.

Flexible Borrowing

A HELOC lets you borrow only what you need, when you need it, during the draw period. In a decreasing rate environment, you can time borrowing to coincide with rate drops. In essence, the HELOC will act like a low-cost credit card secured by your home!

Interest-Only Payment Options

A HELOC allows interest-only payments during the draw period. So in a decreasing rate environment, these payments get smaller which can improve your short-term cash flow, preserving liquidity while you plan your long-term repayment approach.

Potential for Strategic Refinancing

In a fluctuating rate environment, you may be able to refinance a HELOC into a fixed-rate home equity loan with a lower rate. This can lock in savings if you expect rates to rise again in the future. Some HELOCs, like the product offered by Norway Savings Bank, allow you to convert a portion of the line into a fixed rate loan with a competitive rate.  This provides you flexibility to lock in rates or to move your funds back into the line portion with relative ease, based on your needs and the interest rate environment.

Useful for Home Improvements or Debt Consolidation

Lower HELOC rates will mean a better return on investment or greater interest savings.

Potential Tax Deductibility

Interest on HELOCs used for home improvements may be tax-deductible, amplifying the benefit of lower rates. For further information, consult your tax advisor to determine if your HELOC use qualifies for tax-deductibility status.    

HELOCs provide homeowners with a valuable opportunity to access the equity they’ve built in their homes, a function that only increases while the rate environment decreases. Remember to always consider factors like a repayment plan and your personal budget when assessing whether it is the right move for you now or in the future.

Norway Savings Bank Home Equity Loans & Lines of Credit

At Norway Savings Bank, we want to simplify the borrowing process. Our local lending experts meet you where you are, take time to understand your needs, and when we’ve found the right option, we make the application process fast and easy. We’re here to help. Ready to get started? Check out our Home Equity page, or contact a lender.