What's the home equity loan interest rate forecast for fall 2024?
With inflation remaining higher than the Federal Reserve's target rate and the costs of many goods and services rising, many consumers are looking to borrow cash to reduce financial strain or consolidate their high-rate debts with a lower-interest loan. But interest rates are high, too — at least for now.
That could change in the near future, though, as the Federal Reserve eyes a rate cut amid slowing inflation. Most analysts are now forecasting that the first Fed rate cut will occur at the September meeting. But how would a rate cut this fall help consumer borrowing rates — and, in particular, those on home equity loans and home equity lines of credit (HELOCs)?
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What's the home equity loan interest rate forecast for fall 2024?
Here's what experts say is on the horizon for home equity loan and HELOC rates this fall.
Home equity rates will drop
The general consensus is that home equity rates on both home equity loans and HELOCs are going to drop in fall 2024, as are mortgage rates across the board. Ultimately, though, it comes down to the Fed's plans for rate cuts.
While the central bank has stopped short of saying exactly when it will reduce its federal funds rate (and by how much), Chairman Jerome Powell did say a rate cut is "on the table" for September. The CME Group FedWatch Tool also currently shows a 100% chance of that occurring.
Consumer borrowing rates typically follow the trajectory of the federal funds rate and the prime rate that's tied to it. So when these rates fall, home equity borrowing rates typically drop as well.
"I anticipate a 0.25%, or maybe a .50% reduction in the prime rate by the end of the year," says Bill Westrom, CEO of equity and debt management company Truth in Equity. "From an economic perspective — and eliminating any perceived political motivation, I believe a slight reduction would give us all a little boost — a little relief, without adding to inflation. However, there are so many variables associated with the decision, we really just have to wait and see what the Fed thinks is best."
Right now, the FedWatch Tool shows about a 49% chance of a 25-basis-point reduction and a 51% chance of a 50-point one. Those projections tend to change often, though.
"I don't believe there will be a significant reduction," Westrom says. "With the economy in its current condition, I think we can expect the Fed to tread lightly with any rate adjustments."
Find out what the best home equity borrowing rates are today.
Try and wait out borrowing
Unless there's a pressing reason you need the funds from a home equity loan or HELOC right now, experts say you're likely safe to wait it out.
"I don't see the rush. Rates are trending down, and these products aren't going anywhere," says Debra Shultz, vice president of lending at CrossCountry Mortgage's The Shultz Group. "The only risk to waiting would be a possible decline in the value of the home. The lower the
value, the less equity there would be to draw against."
And while rates are expected to fall by the end of the year, the Fed isn't expected to finish its rate cuts in 2024. Depending on where inflation goes, many more could follow — and that would mean lower home equity rates down the line, too.
"If interest rate is the deciding factor in taking out a new loan, then I would wait," Westrom says. Interest rates will come down — they have to. When and by how much is the $64 million-dollar question. I don't think we need to fear rates going up, so there really is no risk to waiting."
Waiting might not be worth it in some cases
If you're in need of cash more quickly and can't afford to wait it out for rates to drop, then borrow now — as long as the numbers work for you.
"I would say a bird in the hand is worth two in the bush," says John Aguirre, a mortgage broker at Loantown. "If you're able to meet your goals with the current rate and repayment plans, then execute now and take any risk off the table."
Westrom recommends considering a HELOC if you need cash sooner rather than later, as these are typically variable-rate products. That, in turn, will allow you to leverage lower rates should they drop later on.
"There is much more flexibility with a HELOC, and you get to ride the interest-rate-wave down as the economy improves — which it will," Westrom says.
The bottom line
Whether you get a home equity loan or HELOC now or months down the line, always be sure to shop around for your loan and lender. Compare rates, fees, terms and repayment details, and make sure you're getting the best product for your needs and budget. You can also work on improving your credit score, as this will help you qualify for the lowest interest rates.
