After the Federal Reserve issued three interest rate cuts in the final four months of 2024, optimism was high that those cuts would continue in 2025, even if they came at a slower pace. But that hasn't been the case in the first half of the year as the central bank has elected to keep its benchmark rate frozen at a range between 4.25% and 4.50%. Thanks to a combination of sticky inflation and concerns over economic policies and tariffs, rates at the start of July remain where they were at the start of January.

But that could soon be changing. The central bank is set to meet again on July 29 and July 30, and while , comments about the future of interest rates post-meeting could have the potential to shake up the rate climate. And, a cut when the Fed meets again in September will almost assuredly happen.

Against this backdrop, then, homeowners contemplating borrowing from their home equity find themselves trying to answer a series of questions. One of the more important ones revolves around which home equity borrowing product to use. Specifically, should they open a home equity line of credit (HELOC) or home equity loan before the July Fed meeting? Below, we'll examine the considerations for both.

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Should you open a HELOC or home equity loan before the July Fed meeting?

There's much to consider to help answer this question, and there is no one-size-fits-all approach each homeowner should take. Instead, consider the circumstances that support opening either now, before the central bank meets again at the end of the month:

Why you may want to open a HELOC before the July Fed meeting

The case for opening a HELOC before the July Fed meeting is a clear but logical one. If rate cuts are issued at the meeting or simply even hinted at for the immediate future, HELOC rates are likely to change for borrowers, perhaps as soon as August. That's because HELOCs have variable rates that will be quickly responsive to market conditions. HELOC rates change monthly for borrowers. So, if you're confident that rate cuts are on the horizon and want to be able to take advantage as best as possible, a HELOC makes the most sense. 

That said, HELOC rates can rise as easily as they can fall, so volatility will need to be priced in before getting started. That means calculating repayments at a variety of realistic rate scenarios to better determine affordability both now and into the future. Failure to account for these rate changes can make your HELOC difficult to repay, which is not a circumstance you want to find yourself in when putting your home up as collateral in exchange for the line of credit.

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Why you may want to open a home equity loan before the July Fed meeting

What happens if the federal funds rate remains the same this month, and comments made post-meeting indicate a higher rate for longer? In this potential scenario, rates on borrowing products may remain where they are now and could potentially even increase. That's because lenders don't need to wait for formal Fed rate action, in one way or another, to adjust the rates they offer borrowers. That could be problematic for HELOC borrowers, but not much of a concern for home equity loan users, who may have locked a lower rate by acting earlier in the month. 

Home equity loan interest rates, after all, are fixed and will remain the same until the borrower elects to refinance them. And while an average 8.26% interest rate may not seem cheap right now, it could be the better (and smarter) option versus waiting for rate changes that could make your home equity loan even more expensive in the weeks ahead. If you want to borrow home equity, then, but want to be able to budget with precision and reduce stress over an evolving interest rate climate, a home equity loan could be the better choice now, before the July Fed meeting formally kicks off and rate changes become more likely.

The bottom line

There's a compelling case to be made for opening a HELOC before the July Fed meeting and there's an equally strong argument for opening a home equity loan before that meeting, instead. Homeowners should carefully consider the pros and cons of each option, then, before getting started and they should do so against the reality of a changing and hard-to-predict rate climate. With the home not only functioning as a funding source but as collateral in this exchange, the right decision must be made for your finances both now and into the future.