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MoneyWatch: Managing Your Money
By Aly Yale
Edited By Angelica Leicht
/ CBS News
With inflation largely holding steady over the last few months, the Federal Reserve has done so, too — steering clear of any more hikes to its federal funds rate. As a result, interest rates — including those on home equity loans — have started to trend downward.
As we get further into 2024, though, it's possible home equity loan rates could drop even further. And, the question is: Just how far could they go?
Find out the home equity loan rates you may qualify for online here.
How far will home equity rates drop in 2024? Here's what experts think
Here's what experts say abouthome equity loan rates in 2024.
When home equity loan rates will fall in 2024
Home equity loan rates have already started to drop this year — at least slightly, but more notable drops could come once the Federal Reserve starts actively decreasing its federal funds rate (the rate at which banks can borrow money from each other).
The Fed has indicated three rate drops are likely on the horizon for this year, but the timing of those is still up in the air.
"The next Fed meeting is at the end of January," says Bill Westrom, CEO of TruthInEquity.com. "They may keep rates as they are in a wait-and-see approach if there are any economic indicators making them feel uneasy. If they feel good about the economy, we should see a 0.25% decline. And if they're lacking confidence in the economy, we'll have to wait until their next meeting in March."
According to predictions from the CME Group's FedWatch Tool, the Fed is most likely to drop rates at its March meeting, which takes place March 19-20. Though the likelihood changes often based on investment activity (which the tool uses to gauge potential Fed moves), the chance of a rate drop in March is currently over 65%.
The Fed's announcement of possible rate cuts next year "has already had a notable impact on the mortgage market," says Mike Roberts, co-founder of City Creek Mortgage. "Historically, when the Fed lowers interest rates, we often see a corresponding decrease in home equity loan rates. So, borrowers may benefit from more competitive rates in the near term."
Explore today's top home equity loan options online here.
How far home equity loan rates will fall in 2024
Experts largely agree that home equity loan rates — and all kinds of mortgage rates, for that matter — will drop in 2024. They're just not sure how far.
For the most part, that will depend on how far the Fed goes on its rate drops.
As Westrom explains, "If the Federal Reserve follows through on recent comments, they could reduce rates by up to 0.75% during 2024. They are hinting at further declines through 2025 and into 2026."
Susan Waite, vice president of lending at Point Breeze Credit Union, expects rates to decline throughout the year, but not as much as rates on purchase and refinance mortgages likely will.
"Home equity loan rates won't fall as much as the first mortgage rates since they were priced so well in 2023 to make up for the loss of originations in first mortgages," Waite says. "In 2023, most lenders saw significant growth in their home equity loan and HELOC portfolios and priced these to stay competitive."
Still, that's not all bad news.
"Even a slight reduction in interest rates across the board will have a measurable impact," Westrom says.
Factors experts are monitoring to better determine a drop
For home equity loan rates to drop, experts are watching a few things — namely, "Fed rate cuts, inflation, economic growth, and housing market conditions," Waite says.
If the Fed thinks inflation is under control — or at least nearing the bank's 2% goal — it will start cutting rates to stimulate the economy. Then, home equity loan rates will follow suit.
"Low interest rates get borrowers back into the marketplace for home equity products, mortgages, cars, etc.," Westrom says. "Interest rates drive consumer borrowing, thus driving the economy."
Making your move
If you're eyeing a home equity loan, chances are you're about to see lower rates. But Roberts urges homeowners: "Be on your feet, rather than waiting around. It's essential to monitor market trends closely if you're considering a home equity loan or line of credit."
Make sure you shop around for your home equity lender, too, as rates and closing costs can vary significantly between institutions.
