Last updated: December 2025
Quick answer
Mortgage rates are typically fixed and tied to long-term bond yields, while HELOC rates are variable and tied to the prime rate, which tracks the Federal Reserve’s decisions. This fundamental difference causes them to move independently—and often in opposite directions.
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The basics: Two types of rates, two different systems
Borrowers often assume that HELOC rates and mortgage rates respond to the same market conditions. They don’t.
- Mortgage rates are primarily driven by long-term bond markets, especially 10-year Treasury yields.
- HELOC rates, by contrast, are tied to the prime rate, which moves based on Federal Reserve interest rate decisions.
This means that mortgage rates could fall while HELOC rates rise, or vice versa. Understanding how these rates are determined is essential for making smart borrowing decisions.
Refresher: What is a HELOC?
Fixed mortgage rates and long-term bond yields
When you take out a traditional mortgage, especially a 30-year fixed, it’s based on the long-term cost of borrowing in the broader economy.
Mortgage rates are influenced by:
- 10-year U.S. Treasury yield
- Mortgage-backed securities (MBS) market
- Inflation expectations
- Investor demand for bonds
- Economic stability
Because these are long-term products, lenders set mortgage rates to reflect expected conditions over decades, not months. This explains why fixed mortgage rates sometimes fall even as the Fed raises short-term rates.
Read: How Does a HELOC Work?
HELOC rates and the short-term prime rate
In contrast, home equity lines of credit usually carry variable interest rates. Most are structured as:
HELOC rate = Prime rate + Lender margin
The prime rate is a short-term benchmark rate used by banks, and it almost always moves in lockstep with the Federal Reserve’s federal funds rate. When the Fed raises rates to combat inflation, the prime rate and your HELOC rate rise soon after.
Key factors affecting HELOC rates:
- Federal Reserve rate decisions
- Prime rate movements
- Lender-set margins based on credit score and LTV
- Variable APR structures with monthly or quarterly resets
This makes HELOCs much more sensitive to real-time shifts in economic policy.
Many homeowners are wondering why HELOC rates are rising even as mortgage rates remain stable. It comes down to short-term monetary policy and the Federal Reserve’s inflation-fighting measures.
Read: Want a HELOC? Your Guide to HELOC Application
Why borrowers often misunderstand these rate shifts
Homeowners often make incorrect assumptions, like:
- “If mortgage rates are going down, my HELOC rate should too.”
- “HELOCs are always cheaper than mortgages.”
- “Fixed-rate loans are better in all environments.”
These beliefs can lead to costly borrowing decisions. For example, someone might delay applying for a HELOC, thinking rates will fall with mortgages, when in reality, the Fed rate vs mortgage rates story tells a different tale: mortgage rates may drop while Fed hikes push HELOC costs higher.
The reality:
- Mortgage rates = long-term economic outlook
- HELOC rates = short-term monetary policy
Read: How to Apply for a Home Equity Line of Credit Online
Tappable equity and rate sensitivity
Your tappable equity, the amount of your home’s value you can borrow against, may increase even while HELOC rates rise. That’s because home values often rise even during inflationary periods.
How to calculate tappable equity:
- Estimate the current home value using recent sales
- Subtract the mortgage balance
- Multiply by lender’s max LTV (usually 85%)
Example:
- Home value: $700,000
- Mortgage balance: $420,000
- Max LTV: 85%
- Tappable equity = ($700,000 × 0.85) – $420,000 = $175,000
This equity is a valuable resource, but the cost of tapping it depends on which product you choose and the current interest rate environment.
Read: Calculate Your HELOC Loan Amount
Side-by-side rate behavior: HELOC vs mortgage
| Category | HELOC | Fixed Mortgage |
|---|---|---|
| Rate type | Variable (usually) | Fixed (15, 20, or 30 years) |
| Influenced by | Prime rate (Fed policy) | Bond market, 10-year Treasury |
| Frequency of rate changes | Monthly or quarterly | None during fixed term |
| Rate cap | Often, but varies by lender | Not applicable |
| Typical use | Renovations, debt consolidation | Purchase or refinance |
| Tied to equity? | Yes | Yes (if cash-out refinance) |
HELOC rates can rise quickly in a high-inflation economy, while mortgage rates might remain stable or decline based on long-term investor sentiment.
When evaluating fixed vs variable loan options, consider how long you plan to borrow, your risk tolerance, and the direction of interest rates. Fixed mortgages offer rate certainty, while HELOCs provide flexibility—but may cost more if rates rise.
Strategic decisions in a changing rate environment
With rising Fed rates, HELOCs become more expensive to carry, but they still offer unique advantages:
- Borrow only what you need, when you need it
- Lower upfront costs compared to a refinance
- No disruption to your existing mortgage
However, during periods of falling long-term rates, refinancing your mortgage, especially for debt consolidation, may be more cost-effective.
Best use cases by rate environment:
- Use a HELOC if you need short-term access to cash and want flexibility.
- Use a mortgage refinance to lock in a stable, long-term rate for large sums.
- For debt consolidation, compare mortgage vs HELOC options based on total costs, term lengths, and rate volatility.
Why HomeEQ offers more than just a rate
HomeEQ helps you understand rate differences and provides tools to act strategically.
HomeEQ advantages:
- Flexible rate terms, including hybrid and fixed-rate options
- Transparent prime + margin structure
- No appraisal or in-person visits required
- Fast approvals and equity calculator tools
- Expert guidance on when to use a HELOC vs refinance
Takeaway: Choosing the right strategy for you
Unlike traditional lenders, HomeEQ specializes in helping homeowners tap equity regardless of interest rates, with clear terms and no surprises.
See your personalized rate — no hard credit check.
FAQ: HELOC rates vs mortgage rates
Q: Why does my HELOC rate change, but my mortgage doesn’t?
A: HELOCs usually have variable rates tied to the prime rate, which changes based on the Federal Reserve’s actions. Fixed-rate mortgages do not change over time.
Q: Are HELOC rates higher than mortgage rates?
A: Often, yes. HELOCs are more volatile and reflect short-term borrowing costs, which can spike quickly. Mortgages offer more rate stability.
Q: Can I get a fixed-rate HELOC?
A: Some lenders, like HomeEQ, offer fixed-rate HELOC options or allow you to fix a portion of your HELOC balance for better cost control.
Q: Should I refinance or get a HELOC?
A: If rates are high and you want flexibility, a HELOC may be better. If you want a long-term fixed rate and are consolidating large debt, refinancing might make sense.
Q: Do mortgage rates follow the Federal Reserve?
A: Not directly. Mortgage rates are influenced by bond markets and long-term economic forecasts, not short-term Fed rate changes.
