How low will home equity loan interest rates drop in November?
High inflation and the elevated interest rates meant to tame it have dogged borrowers over the past few years. Even with high borrowing costs keeping many people from adding new debt, home equity borrowing has remained an option for those looking to tap into their home's value. Since these home equity loans and home equity lines of credit (HELOCs) are backed by your home, they typically come with lower interest rates than credit cards and other types of loans.
Fortunately, the lending environment is changing for the better. Inflation is falling, and the Federal Reserve cut interest rates by 0.50% in September. With the Fed meeting this week and again in December, some economists anticipate further interest rate reductions, which could make borrowing more affordable.
While recent developments look promising, nothing is certain. Interest rates across various loan types, including mortgages, edged higher in October. As of November 7, 2024, the national average interest rates for home equity loans and HELOCs are 8.41% and 8.70%, respectively. But could events in November push home equity loan rates lower, and if so, by how much? Let's break down what could happen and how it might affect you.
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A small home equity loan rate drop is possible in November
If the Fed lowers the federal funds rate as some anticipate, a corresponding drop in mortgage rates — including home equity loan and HELOC rates—could be possible. The CME Group's FedWatch Tool indicates a 98% chance the bank will cut the rate at its November meeting. If that occurs, both new and existing HELOC rates might decrease, as they are variable and adjust on a monthly basis.
By contrast, home equity loan rates may not see an immediate impact from a Fed rate cut, as they are typically fixed and don't adjust monthly like HELOC rates.
"If the Fed drops its rate by a quarter point, then you may see HELOC rates drop by a quarter," says Mason Whitehead, branch manager at Churchill Mortgage. "I don't think anyone is expecting another 50-basis-point rate cut, and there is some talk about not seeing a cut at all."
Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation, shares a similar outlook but points to December as a possible turning point.
"I don't anticipate the Federal Reserve to drop rates in their next meeting for November 6-7. However, they will meet one last time for 2024 in mid-December. Depending on what economic news comes out, the Feds may reduce rates then," Schachter says.
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Home equity loan rates likely to remain steady in November
If you're thinking about tapping into your home equity for cash, you might find slightly lower rates in November. Just remember that some experts expect rates to stay the same or only dip a bit in the short term.
"I expect home equity lending rates to remain the same in November," says Schachter. "The Federal Reserve did a major decrease of 0.50% in September. Since then other economic data has come out indicating that the job market is still very strong."
Schachter believes the direction of mortgage rates, including home equity lending options, may depend in part on the upcoming November jobs report by the U.S. Bureau of Labor Statistics.
"If the economy is still hot, I don't expect the Federal Reserve to drop rates in November," Schachter says.
Whitehead is seeing increased interest in HELOCs and anticipates rates staying the same or dropping slightly.
"HELOC rates are typically tied to prime, so they are impacted when the Fed lowers or raises the federal funds rate. I believe these rates will remain flat, but if the Fed lowers the rate in November, you may see a small drop in HELOC rates—not much to get excited about, but every little bit helps," Whitehead says.
The bottom line
While a 0.25% rate drop in November could help you save money, remember — it's not guaranteed. And depending on the amount you borrow, the potential savings may not be substantial. With no way to predict with 100% certainty if rates will go up, down, or stay steady, focus on what you can control. If you're comfortable with the payments and the loan fits your financial goals, moving forward could make sense.
"A home equity loan doesn't need to be a quick decision, but rather one that fits into your long-term financial goals," says Alex Beene, a financial literacy instructor for the University of Tennessee at Martin. "If you're using it sparingly and to add value to your life either for an investment in yourself or something you plan to sell in the short or long term, then it can be a savvy decision. If you don't have that plan outlined, it's a risk you shouldn't take."
Fortunately, interest rates may be trending down—a welcome sign for borrowers waiting on the sidelines until now. Comments from the Federal Reserve's September meeting suggest further rate cuts could be on the way this year and into 2025, making home equity borrowing options potentially more affordable soon.
