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If you’ve borrowed money in recent years, you know how market dynamics can affect what you’re offered. During the height of the pandemic in 2020 and 2021, for example, interest rates were near zero, allowing home buyers to purchase homes at near record low rates. These rates increased, however, in the following years thanks to inflation and a tip to the federal funds rate. Therefore, if you had waited to act, you may have paid exponentially more than you would have paid a few years earlier.
A loan option that has gained new relevance in recent years comes through your home heritage. Interest rates on home equity loans and home equity lines of credit (HELOCs) have been materially lower than some popular loan options. And the amount that the average owner can access is currently around $320,000which is many times higher than what many can get with a credit card or personal loan.
Even so, the timing surrounding a home loan application is also critical to getting it right. And with the Federal Reserve’s final meeting in 2024 and another interest rate cut expected later this December, many homeowners may be wondering about the merits of taking out a home equity loan. home before this meeting. Below, we’ll break down what to look out for.
Get started by seeing what home equity loan interest rate you might qualify for here.
Should you open a home equity loan before the December Fed meeting?
It can be compelling to open a home equity loan at this time, before any action taken by the Fed affects the home equity loan rates offered by lenders. But rushing to a home loan application is not necessary for many right now. Here’s why:
A rate cut is more likely than a rate hike. The CME Group’s FedWatch The tool currently has a 25 basis point cut in the federal funds rate appearing with an 85.8% probability when the Fed meets on December 17-18. If expectations were reversed and a rate hike was expected, it would be more beneficial to open a home loan before the meeting. But with a cut almost certain now, borrowers have more time to shop around for lenders that offer favorable rates and terms. So don’t rush into an application if you don’t have to.
Instead, Start shopping for home equity loans online today.
Rate cuts may already come at a price. Lenders don’t have to wait for formal Fed action to adjust what they offer borrowers. In many cases, they start pricing in changes to their rate offers before the Fed acts. Then, with the likelihood of a rate cut high, what home equity loan applicants see on offer after the Fed’s Dec. 18 meeting may not be significantly different from what currently appears in line This reduces the urgency of applying before that date.
You may need to improve your borrower credentials first. How tall is yours? credit score right now Do you need to work to increase it? For many borrowers, improving your creditworthiness should take precedence over the precise timing of the loan application. After all, it won’t matter how much interest rates have dropped if you can’t take advantage of them with an attractive credit profile. Instead, consider using this extra time to review your credit report for any inaccuracies. And work on ways to raise your score by paying down debt and refraining from applying for any additional credit during the period.
The bottom line
With interest rate cuts on the horizon, those cuts already pre-emptively priced by some lenders and (possibly) the need to improve your credit standing first, it may not make sense to rush to a home equity loan application ahead of the Fed’s December meeting. Instead, use this time to determine how much equity do you need to borrowwhy you need it and the most cost-effective way to insure it. By taking these measured steps now, you can better improve your chances of equity loan success in the months and years to come.