Will home equity loan rates drop in May?
There haven't been many appealing options for borrowers in the last two years.
With inflation problematic, interest rates were elevated to help rein it in. And while that caused inflation to drop from a decades-high in June 2022, interest rates have been stuck at their highest level in 23 years. On Wednesday, the Federal Reserve elected to maintain that level, keeping the benchmark interest rate range unchanged between 5.25% and 5.50%. This has resulted in higher borrowing costs for everything from mortgages and auto loans to personal loans and credit cards.
One alternative that has remained cost-effective, however, has been home equity. By tapping into their equity via a home equity loan or home equity line of credit (HELOC), homeowners have gained access to large sums of money, often at much lower interest rates compared to the alternatives. But an even lower interest rate is always preferable, leading some to wonder if home equity loan rates will drop further this month. Below, we'll break down what to expect now.
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Will home equity loan rates drop in May?
While the Federal Reserve kept interest rates unchanged this week, the implication that higher rates may be staying high for longer was clear. Even absent a formal increase in rates, rates on borrowing products like home equity loans and HELOCs may rise slightly if lenders believe that a rate hike is imminent.
So not only is it unlikely for home equity loan rates to fall in May — they may actually rise. That possibility could become more pronounced if the next inflation report, scheduled to be released on May 15, shows inflation rising yet again. If that happens, an interest rate hike becomes more likely — and rates on home equity products could rise.
Against this backdrop, then, homeowners may want to be proactive. Home equity loan rates are fixed (unlike HELOCs, which are variable). So by pursuing a home equity loan today, owners can lock in today's low rate before it potentially rises further. And, if rates somehow drop in the months to come, owners could refinance their loan then. What they shouldn't do, however, is rate for a better rate climate. Instead, get started now and lock in the lowest rate you can find.
Explore your home equity loan options here to learn more.
Why you should get a home equity loan now
A lower interest rate isn't the only selling point for home equity loans now. Here are two other reasons why you may want to pursue this option today:
- Access to large sums of money: The average amount of home equity is high right now, with owners potentially able to access $190,000 or more right now. Compared to the limits you can borrow with credit cards or personal loans, this substantial amount of money is an attractive feature for many, particularly when accessed at a lower rate than those alternatives.
- Potential tax deductions: Using your home equity to make some summer home repairs, improvements or renovations? Then you may be eligible to deduct the interest you pay on the loan from your taxes next year. Just make sure you understand which projects qualify to secure this unique benefit.
The bottom line
Home equity loan rates are unlikely to fall in May and they could even rise as the month goes on. But because of that likelihood, and because of the low rate borrowers can secure now, it may be beneficial to act promptly. Combined with beneficial features like access to large sums of money and potential tax deductions for qualifying uses, a home equity loan can be your go-to credit option now. As with all financial products, however, be sure to weigh the pros and cons of this unique loan, as you could risk losing your home in the process if you can't pay back what you borrow.
