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Homeowners needing additional financing have had few cost-effective options in recent years. One of the cheapest ways to access a large sum of money is to access existing funds. home equity via home equity loans And Home Equity Lines of Credit (HELOC)). While alternative credit products came with double-digit rates (and still do), these two home equity options come with double-digit interest rates. single-digit interest rate for qualified borrowers. And those rates could fall further now that the Federal Reserve has embarked on what appears to be a new rate-cutting campaign.
With the first drop in interest rates over four years, published in September and others probably for the next Fed meeting in November and December, home equity borrowers could be tempted to wait for this formality before withdrawing funds from their home. But, in many cases, it would be a error. Below, we’ll explain why you shouldn’t wait until November’s rate cut to tap into your home equity.
Find out what home equity loan rate you could get online today.
Why home equity borrowers shouldn’t wait for November’s rate cut
While a rate cut in November could be beneficial for those borrowing against home equity, it’s not necessarily worth waiting for it to happen. Here’s why:
HELOCs will automatically adjust
HELOC interest rates are variable and subject to change every month. So it doesn’t make sense to wait for a rate cut in November if you’re considering using a HELOC. As rates fall (or rise), HELOC rates will adjust independently. In other words, you will benefit from a lower HELOC rate in November, no matter when you open the line of credit. Delaying will therefore offer no additional benefit over what you would get by simply acting now.
Get started with a HELOC here.
Rates won’t drop by exactly the same amount
Home equity loan and HELOC rates are influenced by what the Fed does, but they are not directly dictated by it. So they are unlikely to fall by exactly the same amount as the federal funds rate. Some lenders may even preemptively build in presumptive rate reductions, meaning that what you are offered in the days following a rate cut is unlikely to be materially different from what you might have gotten in the days before the rate cut. intervention of the Fed. So waiting won’t make any difference.
You don’t have enough time to use it as a tax deduction
Interest paid on home equity loans And HELOCs are tax deductible if used for eligible home repairs and renovations. But with just two months left in 2024, you’re running out of time to use these products as a qualifying tax deduction. If you wait until rates drop in November, your tax interest deduction will be minimal when you file your return in the spring. Instead, much of the use of the loan – and its tax benefits – will be deferred until 2026.
Your expenses cannot be delayed
If you need a large amount of money, as many who borrow against home equity do, chances are the expenses you need it for can’t be delayed. If you’re planning to use your home equity to consolidate debt or pay off what you owe to credit card companies, for example, it doesn’t make sense to wait. With the average credit card interest rate nearly 23% now while the average home equity loan and HELOC interest rates are below 9%, you will lose money by continuing to use the former instead of the latter. So don’t delay in anticipating a slight drop in rates.
Use your home equity to pay off your high-interest credit card debt now.
The essentials
Waiting for a rate cut in November may be beneficial for some borrowers, but probably not for home equity users. Since HELOCs will have their rates adjust automatically and rates are unlikely to drop exactly like the federal funds rate does, it may not be beneficial to wait for that to happen. And if you plan to use it for home repairs and renovations, the window of opportunity to deduct interest on your 2024 taxes is closing. Additionally, some spending simply cannot be delayed, especially for what will likely be a marginal benefit, at least with a small rate cut in November. For all these reasons, it makes sense to act now. Just do it in a measured manner, as your home is collateral in these borrowing circumstances. So you’ll want to avoid risking your property if you ultimately can’t pay back everything you took out.
