Home equity rates fall across the board ahead of next Fed meeting

Borrowing against the value of your home just got a little cheaper. The $30,000 HELOC (home equity line of credit) fell two basis points to 8.53 percent – ​​its lowest level in a year and a half, according to Bankrate’s national survey of consumers. lenders. Meanwhile, the average $30,000 home equity loan fell two basis points to 8.38 percent. Rates on home equity, particularly those on HELOCs, have been trending lower since the Federal Reserve began cutting interest rates in September.

What does the rest of 2024 hold for us? Trend watchers are looking ahead to the Fed’s final rally of the year. “Home equity line of credit (HELOC) interest rates are expected to fall next week as the Federal Reserve is expected to cut the federal funds rate by 25 basis points at its Dec. 18 meeting.^th meeting,” says Cristian deRitis, deputy chief economist at Moody’s Analytics. “According to the latest CME federal funds futures, much of the rate cut may already be priced into the market,” however.

What drives home equity rates today?

While HELoan loan rates have fallen but fluctuated slightly in recent months, HELOC rates have been steadily declining in 2024 – and the pace has accelerated with the onset of fall. Their decisions are currently driven by two factors: competition among lenders – as banks and mortgage companies try to lure applicants with low loan terms for a limited time – and actions by the Federal Reserve. In November, the central bank cut rates for the second consecutive time, this time by a quarter point, reflecting moderation in inflation.

“HELOC rates will be sensitive to falling interest rates and borrowers will see rates decline steadily, even faster than fixed-rate home equity loans,” says Greg McBride, chief financial analyst at Bankrate. “HELOC rates could fall faster than credit card rates, particularly if competition drives introductory offers and credit card issuers are wary of delinquencies and are slower to pass on lower rates.”

The conclusion of the 2024 presidential race has also sparked borrower interest, particularly in HELOCs used for home improvements. “A lot of people were staying on the sidelines to see what would happen with the election and interest rates,” said Tyson Blackburn, director of lending at Quorum Federal Credit Union, an online lender serving its members at across the United States. “After the election, we saw a surge in demand.

• Trends in your home equity

  In the third quarter of 2024, total homeowners’ net worth soared to more than $17.5 trillion.

  HELOCs accounted for 17.8% of all home loans in the third quarter of 2024, nearly four times the level recorded at the start of 2021.

  Credit limits on HELOCs increased by $12 billion between the first and third quarters of this year.

What Influences Home Equity Loan Rates?

Several factors can influence home equity loan and HELOC rates.

Chief among them: changes to the Federal Reserve’s monetary policy. New home equity loans and HELOCs are tied to the prime rate, which tends to move in lockstep with the Fed-adjusted benchmark interest rate. As a result, when the Fed raises rates, borrowing costs on equity loans tend to increase. And the opposite happens when it lowers rates.

Actions taken by the Fed influence the general direction of interest rates, not only for home equity loans, but also for consumer loans and financing in general. However, because they use your home as collateral, HELOC and HELoan rates tend to be closer to current mortgage rates – and much cheaper than the interest charged by credit cards and personal loans, which are not guaranteed.

Compare consumer credit rates

The Fed’s monetary policy influences the overall interest rate trends and announced rates you see. However, the personalized offer you receive from a lender on a particular HELOC or new HELoan reflects an additional factor: your creditworthiness, particularly your credit score, your debt-to-income ratio, and the value of the home you are putting down. as a guarantee. .

Learn more: HELOC Requirements and Home Equity Loans in 2024