Should you open a home equity loan before the December Fed meeting?
If you've borrowed money in the last few years, you're well aware of how market dynamics can affect what you're offered. During the height of the pandemic in 2020 and 2021, for example, interest rates were near zero, allowing homebuyers to purchase homes near record-low rates. Those rates surged, however, in the following years thanks to inflation and a spike in the federal funds rate. So if you waited to act, you may have paid exponentially more than you would have a few years earlier.
One borrowing option that has taken on new relevance in recent years comes via your home equity. Interest rates on home equity loans and home equity lines of credit (HELOC) have been materially lower than some popular borrowing options. And the amount the average homeowner can access is currently around $320,000, which is many times higher than what many can get with a credit card or personal loan.
Still, the timing surrounding a home equity loan application is also critical to get right. And with the final Federal Reserve meeting of 2024, and another predicted interest rate cut, scheduled for later this December, many homeowners may be wondering about the merits of opening a home equity loan before that meeting. Below, we'll break down what to consider.
Start by seeing what home equity loan interest rate you could qualify for here.
Should you open a home equity loan before the December Fed meeting?
It may be compelling to open a home equity loan right now, before any actions taken by the Fed affect the home equity loan rates offered by lenders. But rushing into a home equity loan application isn't necessary for many right now. Here's why:
A rate cut is more likely than a rate hike. The CME Group's FedWatch tool currently has a 25 basis point cut to the federal funds rate listed at an 85.8% likelihood when the Fed meets on December 17 and December 18. If the expectations were reversed, and a rate hike was expected, it would be more beneficial to open a home equity loan before the meeting. But with a cut all but a certainty at this point, borrowers have more time to shop around to find lenders offering favorable rates and terms. So don't rush into an application if you don't have to.
Instead, start shopping for home equity loans online today.
Rate cuts may already be priced in. Lenders don't need to wait for formal Fed action to adjust what they offer borrowers. In many instances, they start pricing in changes to their rate offers before the Fed takes action. With the likelihood of a rate cut elevated, then, what home equity loan applicants see offered after the Fed's meeting on December 18 may not be significantly different than what's currently listed online. This reduces the urgency of applying before that date.
You may need to improve your borrower credentials first. How high is your credit score right now? Do you need to work on getting it higher? For many borrowers, improving your creditworthiness should take precedence over the precise timing of a loan application. After all, it won't matter how much lower interest rates have fallen if you can't take advantage of them with an attractive credit profile. Instead, consider using this additional time to review your credit report for any inaccuracies. And work on ways to boost your score by paying down debt and refraining from applying for any additional credit in the interim.
The bottom line
With interest rate cuts on the horizon, those cuts already preemptively priced in by some lenders and (possibly) a need to first improve your credit standing, it may not make sense to rush into a home equity loan application before the Fed's December meeting. Instead, use this time to determine how much equity you need to borrow, the reason why you need it and the most cost-effective way to secure it. By taking these measured steps now, you can better improve your chances of home equity borrowing success in the months and years ahead.
