Home equity lines of credit (HELOCs) are a flexible way to access cash. If you have a sizable amount of equity, you can convert it into cash and pull from a revolving line of credit as you see fit. But there’s a major drawback to these debt products. Most come with a variable interest rate, which makes it challenging to budget for monthly loan payments and borrowing costs.
Whether you currently have a HELOC or are considering one soon, here’s how experts expect interest rates to behave for the remainder of 2024.
Overview of 2024 HELOC Rates
Despite reaching record highs in 2023, HELOC rates have dipped and are expected to hold steady for the remainder of 2024. As of July 31, the average rate on a HELOC was 9.18%.
Current rates for home equity loans are slightly below 9%, but they may also see declines. Lower rates create opportunities for you to tap into home equity at a lower cost.
Lenders are likely to adjust their offerings to match these rate changes. They may offer more competitive rates to attract borrowers looking to leverage their home equity.
The housing market will also play a role. If the market remains stable or improves, it can further support favorable HELOC rates.
So, it’s best to stay informed by monitoring rate changes and checking with multiple lenders to find the best options for your needs.
Importance of Understanding Future Rate Trends
Historical Trends
Historically, HELOC rates have seen fluctuations in response to changes in broader economic conditions. For example, during economic recessions, rates generally drop to stimulate borrowing. These trends are linked to Federal Reserve policies aimed at controlling inflation and encouraging economic growth. By examining these patterns, you can better predict how rates might behave in the future.
Current State of HELOC Rates
Again, as noted by Bankrate, HELOC rates currently hover around 9.18%. Economists expect rates to remain steady for the remainder of 2024 unless the Fed funds rate moves again. Still, monitoring current trends is important for timing your borrowing to get the best possible rates.
Comparison with Mortgage Rates
Mortgage rates are generally lower than those of HELOCs, as they are fixed, and the rates that accompany HELOCs are fixed. In fact, the current average of 30-year fixed-rate mortgages is 6.75%. That’s almost 3 percentage points lower than that of HELOCs, and the latter rate could continue to rise, depending on market conditions.
Remember, although mortgage rates are lower than HELOC rates, both are influenced by the Federal Reserve’s policies. Getting familiar with these key differences can help you decide which borrowing option makes the most financial sense for your unique situation.
Factors Influencing HELOC Rates in 2024
Federal Reserve and Interest Rates
The Federal Reserve’s actions significantly influence interest rates, including those for HELOCs. When the Federal Reserve adjusts the federal funds rate, it affects the prime rate, which is often used as a benchmark for HELOC rates. If the Federal Reserve decides to reduce the federal funds rate, HELOC rates are likely to decrease.
The Federal Reserve may cut rates to stimulate the economy in the latter part of 2024, but it’s impossible to know if it will actually happen. But if it does, this move could lower the cost of borrowing for homeowners. Monitoring the Federal Reserve’s announcements will help you understand upcoming changes in HELOC rates.
Inflation Trends
Inflation also affects HELOC rates. As inflation decreases, the cost of living stabilizes, and borrowing costs might drop. Lower inflation means that the Federal Reserve might have more room to lower the federal funds rate without risking an overheated economy.
Inflation has started to cool, which could lead to reduced HELOC rates if this trend continues. Stable or declining inflation would reduce the pressure on the Federal Reserve to keep rates high, making it cheaper for you to access home equity.
Employment and Wage Growth
As employment figures grow or wages rise, consumers are more likely to increase expenditures. This could drive inflation figures up, and HELOC rates may follow suit. That said, rising unemployment rates and stagnant wages could yield lower inflation rates and potentially lower HELOC rates.
Forecasting HELOC Rates in 2024
Analysis by Financial Experts
At the start of 2024, Greg McBride, Bankrate’s chief financial analyst, anticipated a decrease in HELOC rates. This prediction is based on potential policy changes by the Federal Reserve aimed at stabilizing the economy.
Experts from other financial institutions believe that the slowdown in inflation could also help bring down rates. Economists have continued to closely monitor these trends to provide their most informed forecasts and recommendations.
Potential Scenarios
Several circumstances could trigger a drop in HELOC rates to make them more manageable for borrowers. If inflation levels continue to dip, inflation could do the same and trigger a reduction in HELOC rates.
Likelihood of Rate Decrease
Given the current economic indicators, the likelihood of HELOC rates continuing to decrease in 2024 appears high. The Federal Reserve’s actions and ongoing efforts to control inflation are key factors supporting this forecast.
At the most recent meeting on July 31, there was mention of a possible interest rate cut at the September meeting as an attempt to continue reducing inflation closer to the 2% mark.
Factors That Could Lead to Lower HELOC Rates
HELOC rates are influenced by government policies, stimulus measures, economic trends and global factors. Each plays a major role in determining the direction of HELOC rates for the remainder of 2024.
Government Policies and Stimulus Measures
HELOC rates sometimes change when the government performs certain actions, like altering fiscal policies or introducing stimulus packages. If the measure is done to stimulate the economy, you might see a reduction in rates.
Policies aimed at reducing inflation can also ease borrowing costs. Lowering inflation may encourage the Fed to cut rates, directly affecting the rates on HELOCs.
Economic Slowdown or Recession
An economic slowdown or recession can also contribute to lower HELOC rates. During an economic downturn, the demand for borrowing often falls. To stimulate borrowing and spending, central banks might lower interest rates.
If economic predictions hold and growth slows down in the latter part of 2024, there could be a push to reduce rates. Lower consumer spending and investment might force lenders to offer more competitive rates, including on HELOCs. This scenario helps borrowers benefit from reduced interest rates, making it cheaper to borrow against home equity.
Global Economic Factors
Economic affairs abroad also influence domestic markets and HELOC rates. More specifically, slower economic growth or recessions in Europe or Asia can curb demand for global commodities and investments.
In this case, investors sometimes move towards safer, more conservative assets, potentially leading to a drop in yield and borrowing costs and negatively impacting rate decisions in the U.S.
Strategies for Homeowners
Consider these strategies before taking out a HELOC to snag the best rate. Depending on your individual circumstances, an alternative may be ideal for accessing the cash you need.
Timing Your HELOC Application
If you identify the right time to apply for a HELOC, you could snag a competitive rate and save a bundle in borrowing costs. You may also get lower, more affordable monthly payments.
Fixed vs. Variable Rate HELOCs
A fixed-rate means your interest rate stays the same for the life of the loan, giving you predictable monthly payments that are easier to manage. On the other hand, a variable rate means the rate you receive fluctuates with market conditions. This might result in lower initial rates, but your payments can increase if rates trend upward. Variable rates are tied to an index, which fluctuates with the market.
Assess your financial stability and risk tolerance. If the economy is expected to be unstable, a fixed-rate HELOC may be safer. If rates are projected to drop, you might benefit more from a variable rate HELOC.
Alternatives to Traditional HELOCs
A traditional HELOC may not be a smart financial move, but there are other funding alternatives that could work for you. Here’s an overview of additional options worth considering.
Cash-out Refinance
- A cash-out refinance allows you to swap out your current mortgage for a new, larger one. The difference is for the amount of equity you pull out, and the lender disburses it to you in cash when the loan closes. Most lenders let you borrow up to 80% of the home’s value minus the current outstanding mortgage balance.
- When you apply for a cash-out refinance, the lender will evaluate your creditworthiness and financial profile to determine if you’re a good fit for funding. If so, the next step is the professional property appraisal, which is done by a licensed appraiser to determine the market value of your home. This figure plays a major role in your approval and how much home equity you’re able to access.
- To illustrate how this all works, assume your home is worth $365,000, and the lender approves you to pull out 80% of your home equity through a cash-out refinance. If you currently owe $200,000 on your mortgage, you have $165,000 in home equity. And your borrowing power is capped at $92,000 ($365,000 * .80 – $200,000).
- If you decide to move forward with the transaction, you’ll get a new mortgage for $292,000 ($200,000 + $92,000) that accounts for your outstanding balance and the amount of equity you pull out. The new lender will pay off your existing mortgage, and you’ll also receive the $92,000 in cash shortly after closing.
Home Equity Loan
- This type of loan also lets you borrow against the equity in your home. However, it differs from a HELOC because you receive a lump sum at once with a fixed interest rate that’s payable in equal monthly installments over a set period.
- Like HELOCs, you can potentially convert up to 85% of your home equity into cash. So, if your home is valued at $415,000 and you owe $285,000 on it, you could tap into up to $67,750 ($415,000 * .85 – $285,000) in home equity.
- Again, this amount will be disbursed to you once the loan closes. You’re free to use the loan process however you see fit, and you’ll make set principal and interest payments over a loan term of five to 30 years.
Personal Loan
- If you need a smaller amount of cash or prefer not to use your home as collateral, a personal loan could work. Keep in mind that the amount you’re eligible for and the rate you receive depends heavily on your creditworthiness and income, among other factors.
Conclusion: Will HELOC Rates Go Down in 2024?
There’s a good possibility that HELOC rates will drop again in 2024. The Federal Reserve has hinted at reducing interest rates, which could influence the rates for Home Equity Lines of Credit (HELOC) as well. As inflation cools, borrowing costs may decrease. Be sure to monitor trends so you’ll know when to apply or how to better manage your current HELOC.
