Inflation has cooled slightly compared to a year ago, but prices are still rising at a 3.2% annual rate, according to the latest report. With the Federal Reserve aiming for 2% inflation, they have kept the federal funds rate at a 23-year high since last summer. As a result, home equity interest rates have also remained elevated. As of March 12, 2024, the average home equity loan rate stands at 8.66%, while the average home equity line of credit (HELOC) rate is 8.99%.
“Home equity and HELOC rates follow the prime rate, which is based on the federal funds rate, unlike mortgage rates, which typically follow Treasury yields,” explains Brian Shahwan, VP mortgage broker at William Raveis Mortgage. This explains why we’ve seen mortgage rates fluctuate while home equity rates have remained steady.
What Could Happen to Home Equity Interest Rates After the Fed’s March Meeting?
The Federal Reserve’s next interest rate decision will be on March 20, 2024, and many are wondering what this could mean for home equity interest rates. While the outcome is uncertain, many experts anticipate that the Fed will keep rates unchanged. This means that home equity interest rates are unlikely to drop immediately following the meeting.
Earlier in the year, there was optimism that the Fed might start cutting rates in early 2024. However, that sentiment has shifted. “At the beginning of the year, it was expected that the Fed would begin to cut interest rates as inflation trends improved,” says Ilan Bracha, founder and CEO of IB Global Real Estate Funds. “Now, with stronger-than-expected economic data, the expectation is that the first rate cut will be no sooner than May or June, making lower home equity rates in March very unlikely.”
Even when rates do start to drop, significant decreases might not occur until later in the year. “There have been some indications that home equity rates specifically will drop in 2024, but most experts believe the most significant changes will happen during the second half of the year,” says Tai Christensen, President and Co-Founder of Arrive Home. She adds, “I believe that rates will remain steady through March with more notable rate cuts at the beginning of summer.”
Should You Borrow Against Your Home Equity Before Rates Fall?
With the possibility of rates remaining high for the near future, some homeowners might be debating whether to borrow against their home equity now or wait for rates to drop. Acting now could have its advantages, particularly if you’re dealing with high-interest debt or need to consolidate.
“It’s crucial to strike a balance between seizing a favorable opportunity and not waiting indefinitely,” advises Bracha. For instance, a cash-out refinance loan could allow you to tap into your home equity and pay off high-interest debt like credit card balances, even if it means taking on a higher-rate mortgage.
Christensen echoes this sentiment, noting that “if a homeowner has high-interest debt, such as credit card balances or personal loans, doing a cash-out refinance to a higher-rate mortgage to pay off these debts can be greatly advantageous.”
Ultimately, it’s important to consider your specific financial situation and the offers available to you rather than waiting solely for broader market changes. As Shahwan points out, “There are great rates and programs available today for those in need.”
For more personalized advice and to explore your home equity options, click here to find out what home equity loan rates are available to you today.
Here’s the link to the original news article: https://www.cbsnews.com/news/will-home-equity-interest-rates-fall-after-the-fed-march-meeting/