Why You Should Borrow Home Equity Before Another Rate Increase

If it seems like every borrowing option is more expensive than the last – well, for the most part, it is.

There is the Federal Reserve His goal is to increase the range of the federal funds rate From near zero to more than 5% from March 2022. And because the interest charged on auto loans, credit cards, personal loans and more is tied to this rate — as it rises, so will your cost of debt.

Amid high interest rates, homeowners have an advantage – Home equity loan And Home Equity Line of Credit (HELOC) Interest rates tend to be lower than other options, since they are secured loans. Actually, the top Home equity rates today About 7% to 8%, currently.

But ahead of another Fed meeting, it could pay potential borrowers to take action Good luck later. Below, we’ll break down what to know if you’re considering a home equity loan or HELOC before another potential rate hike.

Find the best home equity rates you can qualify for today here.

What other rate increases will mean for home equity rates

Even with less than a week before the Federal Reserve’s next decision, it’s not entirely clear what they will decide. The CME FedWatch ToolA popular predictor of the Fed’s next move, currently gives a 27% chance that another rate hike will occur.

Meanwhile, signals from Fed officials have been mixed — with different calls for both Another rate hike this month And Break in June before being reassessed later in the year. Fed Chair Jerome Powell Most recently reiterated Earlier comments that the decision would come down to evaluating the data on a meeting-by-meeting basis.

When the Fed raises rates, it can affect almost every type of borrower. So if rates go up, it’s likely that both home equity loans and HELOCs will become more expensive. Looking back, you can see how it has played out over the past year. Since the Fed began raising rates in 2022, average home equity loan rates have risen from about 6.20% to 8.30% APR and HELOC rates have risen from about 4% to 8.40% APR. Bankrate data.

Learn more about how you can get the best home equity rates and start saving money here.

Why You Should Borrow Home Equity Before Another Rate Increase

If you’re thinking about borrowing against your home equity now, the best way to avoid the impact of another potential rate hike is to get protection. Home Equity Loan Rates Today. These carry debt Fixed interest rateSo if you lock in a rate before another increase, your rate will stay the same throughout the term of your loan.

As long as you’re able to lock in a rate you’re happy with and don’t strain your budget, you can avoid fluctuations due to short-term rate changes. Also, if rates drop in the future, you may be able to refinance your loan at a lower rate.

HELOCs, on the other hand, have variable interest rates. So if you borrow now, before rates go up, your rate may still go up. In fact, HELOC borrowers may already be experiencing this with previous rate hikes. Eric Laub, CFP, founder of Finance 180, says, “After rates have risen over the past few years, your payment on your HELOC has also increased. But when rates eventually go down, so may your HELOC rate.

Before the next Fed decision, take the time to consider whether a home equity loan is right for you. It can be beneficial for home owners looking for it Use their increased home value As a means of accessing cash. Plus, there is Potential tax incentives To use these loans for home improvement. But long loan terms and the need to secure the loan against your home can also be risky if you’re not sure you’ll be able to make the payments.

“It’s hard to borrow anything in a high-interest environment,” says Max Pashman, CFP, founder of Pashman Financial, so you should be financially healthy before taking on additional debt. Most importantly, make sure you understand exactly what the terms and conditions of your loan are before you sign — and how future interest rate changes could affect your repayments.

Bottom line

Homeowners are in a good position to score relatively low interest rates Home equity loans and HELOCs In today’s high rate environment. But if the Fed decides Raise interest rates again, the rate of this product may increase, too. If you’re considering taking out a loan, it may be worth locking in a home equity loan rate before the rate hike takes effect. If a HELOC is a better fit for your goals, make sure you understand the ins and outs of how your rate may change before borrowing.

Find out how you can score today’s top home equity rates here.