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The Federal Reserve did for the first time in 15 months Suspended interest rate hikes. This is welcome news for consumers whose borrowing costs are rising and their purchasing power is shrinking as a result of persistent inflation and other economic problems.
But what does this mean for homeowners who are considering tapping into their home equity with a product? Home equity loan or Home Equity Line of Credit (HELOC)? Or, for that matter, what does it mean for those who have already taken out one of these products?
We spoke to some experts to find out.
Check today’s home equity rates here to find out if it’s right for you
What a Rate Pause Means for Home Equity Loans, HELOC Rates
The Fed’s benchmark interest rate affects how much it costs borrowers to take out a loan or line of credit. The higher the interest rate, the more banks charge to take advantage of this More borrowers pay interest.
For homeowners who have already taken out a HELOC, the Fed’s rate pause means their payments should remain steady for the foreseeable future. While home equity loan rates remain fixed, HELOC rates change based on the federal funds rate, so borrowers can finally enjoy a break.
“Since the beginning of 2022, the average HELOC rate has more than doubled, from 4% to about 8.5% today,” said Denny Suppley, Realtor and co-founder of SparkRental. “The Fed suspending interest rates may not lower HELOC rates, although the slowdown will hopefully stop them from climbing. The prime loan rate — which most HELOCs use as an indicator for their value — may even decline slightly in response to a rate break.”
A rate break “will provide temporary relief to borrowers with outstanding HELOC loans who have seen their payments and interest really increase in this Fed tightening cycle,” said John Boyd, CFP, founder and chief wealth adviser at MDRN Wealth.
For homeowners who are considering using their home equity financing to finance their home equity, RatePause advises that if you take out a HELOC, your monthly payments won’t increase the way they have for existing borrowers. This can make it easier to plan for the future.
“With interest rates unchanged during the break, borrowers can experience stability in their monthly payments,” says Mike Cue, real estate agent and owner of Good As Sold Home Buyers. “This stability brings financial predictability, allowing homeowners to better plan their budgets and avoid unexpected payment shocks.”
Since home equity loan rates are fixed when you take out the loan, a rate freeze means you’ll be locked into today’s rate, even if the Fed lowers rates in the future. Depending on your needs, this may or may not affect your decision to apply for one.
Explore your home equity options by comparing rates online today.
Should You Get a Home Equity Loan or HELOC Now?
The federal benchmark interest rate is currently between 5% and 5.25%. So, if you’re wondering if now is the right time to access your home equity, what does that mean for you?
If you need funding now, a home equity loan or line of credit still offers significantly lower interest rates than other financing options, such as Credit card And personal loan. So even if rates are on the high side, your home equity may be your best bet, especially if time is of the essence and you can’t wait for rates to drop.
“Regarding the Fed funds rate, it is plausible that we have reached a peak. However, the duration of this pause becomes the important question,” Boyd said. “The Fed may keep rates on hold but longer than markets expect as they address any lingering inflationary pressures.”
It is also worth noting corelogic It was recently reported that the first quarter of 2023 saw the first annual home equity loss in 10 years. from The amount of equity in your home Affects how much you can borrow, you can ask for Access your home equity now Before it potentially drops further.
Check current home equity rates now and see how much you may be eligible to borrow
How to get the most from your home equity today
To maximize the benefits of a home equity loan or HELOC in today’s rate environment, experts offer the following tips:
- Borrow Responsibly: “Borrow only what you need and make sure the loan payments align comfortably with your budget,” says Cue. “Assess the overall impact on your financial situation and weigh the risks associated with increased debt.”
- Make sure you can afford the payment: Since your property acts as collateral for home equity products, it is imperative that you ensure that you can make timely payments over the life of the loan. “Don’t expect rates to drop significantly over the next six months or even over the next year,” Suppli said. “If you’re going to draw on a HELOC, budget for higher interest rates through at least 2024.”
- Comparison Shop: Inflation may have cooled slightly, but it is still a concern for borrowers. “When inflation is high, lenders typically charge a higher rate to offset their risk of losing money through depreciation caused by rising prices,” says Matt Taifke, founder and principal broker at Taifke Real Estate. “If you’re considering taking out a home equity loan or HELOC in an inflationary environment, you should know this consequence. So try to shop around for the best possible rate.”
- Consult a professional: There are many factors to consider when using your home equity, and current rates are one of them. “If facing a complex financial situation or uncertainty, consulting with a financial advisor can provide personalized guidance based on your unique situation,” says Qiu.
Start your search for a home equity loan or HELOC by comparing your options online now.
Bottom line
The Fed’s interest rate break could be a sign that the economy may be starting to stabilize. But whatever the future holds, there are steps you can take today to use the funds you need as smartly and cost-effectively as possible. No one can predict the future, but by being informed and carefully considering your personal financial situation, you can make the best decisions for you at this time.
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