Will home equity loan rates go down in 2024?
If you've been considering a home equity loan, the rates are currently about 5% higher than they were in late 2020 and early 2021. While that may be discouraging, home equity loans still tend to be more affordable than other popular credit products like personal loans and credit cards, the latter of which currently hovers around 20%.
But can you expect a home equity loan rate drop soon? Below, we'll take a closer look at why home equity rates spiked and where some experts predict they'll go in 2024.
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Will home equity loan rates go down in 2024?
Before getting into what could potentially happen to home equity loan rates next year it first helps to understand why they are where they are now.
In short, the increase in home equity loan rates over the last two years is partially due to the actions taken during the pandemic. The federal government dropped the Fed Funds rate to near zero in April of 2020, eventually leading to a housing bubble, and passed pandemic stimulus bills which introduced an estimated $4.6 trillion into the economy.
At the start of 2021, inflation began to climb — a climb that continued through 2021 and into 2022. To curb it, the Fed launched a series of 11 rate hikes which began in March of 2022 and ended in July of 2023. During that time, the Fed Funds Rate increased from 0.06% to 5.33%. Inflation ended up declining after a record-breaking peak in June of 2022.
"Home equity rates follow the Fed Funds rate, so as the Fed increases rates, home equity rates also increase," says Brian Shahawan, mortgage banker and broker currently licensed with William Raveis Mortgage.
The interest rates on home equity lines of credit (HELOCs) were similarly affected. "HELOCs are based on Prime Rate and the Prime Rate is based on the Fed Funds Rate," says Dan Green, CEO at Homebuyer.com.
Looking forward to 2024, some financial experts predict that home equity loan rates will begin to drop.
"The Fed's voting members project that the Fed Funds Rate will be 50 basis points lower in 2024 and 175 basis points lower by 2025. Every 50 basis point reduction lowers HELOC interest costs by $500 per year for every $100,000 borrowed," says Green.
Mike Hardy, managing partner at Churchill Mortgage, agreed saying, "All economic indicators point toward a decrease in interest rates in 2024. This is great news for people who have or want home equity lines, as HELOC interest rates will run parallel to the movements of The Fed's decisions."
But we may not see the decreases until a few months into 2024 according to Shmuel Shayowitz, the president and chief lending officer at Approved Funding.
"I don't think there will be a cut in March, as historically, there is a 10-month average from the last rate hike to the first rate cut. The last Fed hike was in July, so we think the first cut will be no later than May," says Shayowitz.
See what home equity loan rate you could qualify for here now.
How to shop for the best home equity rates
If you're looking to get a home equity loan in the coming year, it's a good idea to shop around and compare rates. Financial institutions differ in the margins they charge in general, and the margins they'll charge you based on factors like your credit, income and loan amount. The good news is — you can often get personalized quotes online within a matter of minutes by entering some basic information about yourself and your home. Get started here today.
