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Borrowers hoping for some quick relief were left disappointed this week after the Federal Reserve elected to keep interest rates paused. While the benchmark interest rate range will stay the same between 5.25% and 5.50% —a 23-year high— there were indications that rate cuts could come later this year and into 2025. Against this backdrop, borrowers should remain judicious about how they access credit and which credit forms they use.
Homeowners, for example, have a great resource at their disposal: their home equity. Considering that the average homeowner has around $200,000 to utilize in today’s market, right now may be a great time to do so, even with elevated interest rates on pause. Below, we’ll break down three reasons why you should get a home equity loan now.
Start by seeing what home equity loan rate you could qualify for here.
Why you should get a home equity loan with interest rates paused
Here are three compelling reasons why homeowners should get a home equity loan or home equity line of credit (HELOC) with rates frozen.
Rates will stay where they are (for now)
An interest rate pause is still better than an interest rate hike, particularly for those considering accessing their home equity. The average home equity loan interest rate as of Thursday was 8.59% while the average HELOC was 8.99%. And that’s after the Fed’s announcement, meaning that the repercussions of keeping rates the same have likely been accounted for — and rates are still under 9%.
And if hints of a rate cut become more substantive in the weeks to come, rates on both borrowing products may drop lower. This gives borrowers some more flexibility and an extended window of opportunity to find the best lender for their needs (homeowners don’t need to use their current home loan lender if they don’t want to).
Start shopping for home equity loans online now.
Rates are still lower than popular alternatives
Have you looked at the interest rates on other popular credit alternatives lately? Credit card interest rates are around 20% right now while the average personal loan interest rate is better, but still around 12%, for borrowers. Both are significantly higher than what home equity and HELOC lenders will offer right now — and neither comes with the interest tax deductions if used for eligible home repairs and renovations. And with interest rates on pause, the rate climate is likely to remain as is, at least until the Fed meets again at the end of April.
Your rate could drop later this year
While home equity loan rates are fixed and will require refinancing to secure a lower rate, HELOC rates are not. As such, if you take out a HELOC this spring and rates drop fall later in the season, the payment you’ll need to make on the line of credit will fall in tandem. This could result in immediate savings back to you.
“This is simply an interest rate question,” Mark Charnet, founder and CEO of American Prosperity Group, a financial planning firm, recently told CBS News. “If the borrower feels rates will fall in the short-term, a HELOC, which normally adjusts the interest rate monthly, may be a better opportunity.”
Explore your HELOC options to learn more.
The bottom line
With interest rates on pause — and cuts likely for later in the year — now is an opportune time for homeowners to tap into their home equity. By doing so now they can still get a relatively low rate and save money versus using alternatives with much higher rates. And if they use a HELOC over a home equity loan, owners can position themselves for further savings due to the HELOC’s variable rate nature. As is the case when considering home equity borrowing, however, owners should thoroughly consider all options as their home will be used as collateral. If they can’t adequately pay back what they borrow, then they could risk losing their home in the transaction.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
