Why you should open a HELOC before the July Fed meeting
When borrowing money, the timing surrounding your loan is key. If you borrowed with a mortgage or home equity loan in 2020 and 2021, you would have likely secured a near-record-low interest rate. But, in recent years, as inflation surged and the federal funds rate rose in tandem, rates on borrowing products rose exponentially.
That said, the interest rate climate is changing again. Inflation is down significantly from its recent high in June 2022 and the federal funds rate, while stuck at its highest level in 23 years, could soon be cut if inflation continues its downward trend toward the Federal Reserve's 2% goal. In this environment, then, it's critical to choose the right borrowing option at the right time.
And, with another inflation report scheduled to be released on July 11, and the next Fed meeting set to begin on July 31, there's a strong case to be made for homeowners to pursue a home equity line of credit (HELOC) right now. Below, we'll detail why.
Start by seeing what HELOC interest rate you're eligible for here now.
Why you should open a HELOC before the July Fed meeting
There are multiple reasons why a HELOC could be beneficial to open before the next Federal Reserve meeting. Specifically, homeowners may want to act now because:
HELOCs have variable rates
Unlike their home equity loan counterparts, HELOCs have variable interest rates. This means that the rate you open the loan with will change over time, perhaps as often as each month depending on the lender you use and the terms you've agreed to. While that could be a drawback when rates are on an upward trend, it's a positive when rates appear to be cooling, as they have been. And you won't need to add an extra expense to secure the new lower rate (unlike home equity loans which will need to be refinanced to capitalize on any positive movement).
Learn more about your HELOC options online today.
Rates may fall soon
While a formal cut to the federal funds rate would cause lenders to offer lower rates on their borrowing products, borrowers don't necessarily need to wait for that to happen to get a lower rate. Even an implication that formal rate cuts are incoming could cause lenders to lower their rates on HELOCs and other loans. And economic indicators like a consistently cooling inflation rate – as has been the case in recent months – could also cause a reduction in rates.
So if you open a HELOC now, not only could you potentially secure a lower rate than what's been recently available, but you'll also position yourself to take advantage of future rate drops when they take place.
A formal cut appears likely
Optimism was high in early 2024 that borrowers would see multiple reductions in the federal funds rate. And while a stubborn inflation rate has caused that optimism to dwindle, at least one rate cut still appears likely for this year, perhaps before the summer is over. If and when that occurs, the markets will respond accordingly and lenders will reduce the rates they provide borrowers, assuming your credit score and standing have remained the same or improved since your initial application. So the 9.17% HELOC rate you're offered now could soon be below 9% if economic conditions continue to improve.
The bottom line
The variable rate nature of HELOCs makes them a risky way of borrowing in a volatile rate climate but a beneficial one in which rates could soon be cut. But with the potential for rates on this product to fall even absent a formal rate cut and the likelihood of them dropping even lower when the first rate cut of 2024 is finally issued, it makes sense for borrowers looking for an inexpensive way to borrow money to pursue a HELOC now, before the Federal Reserve's next meeting on July 31. Just be sure to carefully consider the pros and cons of this borrowing option in advance. And only apply (and use) the amount of money you feel comfortable repaying as your home functions as collateral in these borrowing circumstances and you could lose it if you can't repay what you borrowed.
Have more questions? Learn more about your HELOC options online now.