In recent years, as interest rates surged on various borrowing products, homeowners have increasingly turned to their home equity as an alternative source of financing. Home equity loans and home equity lines of credit (HELOCs) typically offer much lower interest rates compared to personal loans or credit cards. This trend has continued into 2024, with HELOC rates seeing a significant drop. In contrast, credit card interest rates have recently hit a record high, highlighting the appeal of home equity financing.
However, borrowing against your home comes with risks, so it’s important to understand the dynamics of HELOC interest rates in today’s market. Here’s what you need to know right now about HELOC rates:
HELOC Rates Are Variable
Unlike fixed-rate loans, HELOCs come with variable interest rates. While this feature was a disadvantage when rates were on the rise, it has now become a benefit. As the Federal Reserve continues to ease the federal funds rate—most recently with a cut expected soon—HELOC rates are expected to decrease further. In fact, HELOC rates have already dropped by nearly two percentage points since the start of 2024, starting the year around 10%. This means that not only can you secure a lower rate now, but rates may continue to decrease in the coming months.
Rate Adjustments Happen Frequently
If you already have a HELOC, it’s important to know that the interest rate on your line of credit could change each month. Lenders adjust their rates based on the broader interest rate climate, and they don’t have to wait for the Federal Reserve to make an official rate cut. Many lenders proactively lower rates in anticipation of future cuts. As a result, if you’re considering a HELOC, it’s a good idea to shop around for lenders now rather than waiting for the next Fed rate reduction. Lenders may already be pricing in potential rate cuts, which could help you secure a better deal today.
Don’t Wait for a Lower Rate
Unlike with a home equity loan, where it might make sense to wait for the lowest possible fixed rate, there’s no need to delay applying for a HELOC in hopes of securing a lower rate. HELOC rates are adjustable, meaning that if you open a HELOC at a rate of 8.53% today, your lender is likely to reduce the rate if it drops in the future. Waiting could just delay the financing you need for important expenses like consolidating high-interest debt or funding major home repairs. If your credit is in good standing and you’re considered a low-risk borrower, applying for a HELOC now may be the best move.
The Bottom Line
For those seeking an affordable way to borrow in today’s economic environment, a HELOC can be a smart choice. With variable rates already lower than at the start of 2024—and the potential for further decreases in the coming months—now is a good time to consider tapping into your home’s equity. While it’s essential to monitor the rate climate, there’s no need to wait for a specific rate cut, as lenders adjust rates on a rolling basis. If you need financing soon, applying for a HELOC now could help you get the funds you need for 2025 projects and goals.