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MoneyWatch: Managing Your Money
By Jake Safane
Edited By Matt Richardson
/ CBS News
Following its March meeting, the Federal Reserve did not change the federal funds rate, keeping the target rate at a range of 5.25-5.50%. A few months ago, many experts predicted that the Fed would start cutting rates in early 2024, but conditions have changed, with inflation being more persistent than expected. And with the Fed keeping rates high, that has influenced the real estate market.
In addition to mortgage rates being high, existing homeowners who want to engage in home equity borrowing also face elevated costs. Currently, both home equity loan interest rates and HELOC rates are near 9%. But what will happen to home equity rates as the spring evolves, particularly in the face of a potential cut to rates courtesy of the Fed? We asked some experts to weigh in.
Considering a home equity loan now? See what rate you could qualify for here today.
Home equity loan rate forecast for spring 2024
Here's what the experts we spoke to said they're expecting to happen to home equity loan interest rates this season.
A changed tune on home equity rates
With the Fed not cutting rates yet, previous predictions a few months ago about home equity and mortgage rate drops have not come to fruition yet, and many experts have adjusted their outlooks.
"There was a degree of optimism surrounding the future of interest rates, particularly with the anticipation that the Federal Reserve would more quickly implement rate cuts once inflation was brought under control. This expectation led to hopes for a quicker 'snap-back' effect in rates," says Jared Antin, managing director, associate real estate broker at Elegran | Forbes Global Properties. "However, recent inflation data has presented a more complex picture, causing a reassessment of future interest rate moves and contributing to a realization that rate cuts may not occur as rapidly or dramatically as initially anticipated," he adds.
That's not to say that home equity rates won't fall anytime soon, and part of the issue depends on the type of home equity borrowing. But in general, many experts do not expect much change in the next few months.
This spring, home equity rates "will stay the same because the Fed held the fed funds rate steady for the fifth straight meeting," says Jay Garvens, business development manager at Churchill Mortgage.
If and when the Fed does cut rates – most now predict the first cuts to happen in June, toward the very end of the spring — then that could lead to lower home equity rates.
Phil Crescenzo Jr., vice president, Southeast division at Nation One Mortgage Corporation, says that right now there will not be a decrease, but "once the Fed announces a drop, immediate drops will follow" for home equity rates.
Learn more about today's home equity interest rates here now.
There's still time for change
While many experts now think that it could be a few months until home equity rates fall, some have a more optimistic outlook.
For one, it's worth noting that HELOC rates and home equity loan rates don't always move in unison. HELOC rates are typically variable, so they can be more sensitive to short-term changes and Fed policy, whereas home equity loan rates are often fixed for 10 or 15 years, so those depend more on long-term interest rate outlooks.
"The Federal Reserve has signaled it will start lowering interest rates later this year, which means homeowners with HELOCs will see their rates fall in lockstep," says Dan Green, CEO at Homebuyer.com. "Rates on home equity loans correlate more closely with 30-year fixed-rate mortgage rates than the fed funds rate, and mortgage rates are expected to drop through the spring and summer months," adds Green.
And while the early 2024 rate cuts that some projected haven't played out yet, the year still isn't that far underway, and a lot can change.
"It's too soon to tell whether mortgage rate predictions are off; we're not even through Q1. It takes months for Fed changes to work their way through the economy. The ink's still wet on the page," says Green.
The bottom line
Home equity rates might not fall as fast this spring as some may have predicted a few months ago, but many experts are still optimistic that rate cuts are coming soon. However, more of that rate action might happen primarily in the second half of the year, though it's still early enough where conditions can change in either direction.
Still, there can be incentives for homeowners to take out home equity loans even if rates remain high in 2024.
For one, there's a possibility rates could go even higher. And acting now could be beneficial for some that can use home equity loans to their advantage, such as to consolidate high-interest debt. Thus, homeowners should consider their overall financial situation, rather than solely trying to determine where rates are heading.
