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After more than four years of repeated interest rate hikes, the Federal Reserve began to reduce interest rates in September, starting with a larger-than-expected cut of 50 basis points. But that was just the beginning, with the Fed continuing to cut rates this week with a Reduction of 25 basis points. And a further reduction of the same amount is widely expected at the next Fed meeting in December. While these discounts have attracted new borrowers, they highlight something that home equity borrowers may have already noticed: Interest rate decreased all year.
This was particularly noticeable for those who exploited their home equity far from Home Equity Line of Credit (HELOC). These products have variable interest rateswhich can be problematic when interest rates are rising, as they have been in 2022 and 2023, but beneficial now that the overall rate climate is cooling again. So, exactly how much have HELOC interest rates fallen this year? And how far could they fall? This is what we will detail below.
Find out what HELOC interest rate you could qualify for here.
Here’s how far HELOC interest rates have fallen this year
HELOC interest rates are traditionally lower than those available with credit cards and personal loans, thanks to the fact that the home in question serves as essential collateral. But they didn’t start 2024 in a particularly attractive position, sitting at 10.16% on January 3, 2024, according to historical data from Bankrate.
Since then, however, they have declined significantly, albeit irregularly. As of January 10, 2024, they averaged 9.32% and on February 7, they were 9.12%. Rates fell to just below 9% in March, but rose again in May to 9.89%, with the fight against inflation appearing more problematic than many expected. However, as inflation subsided over the following months, HELOC rates also slowed. They rose to just under 10% in early September, but have since fallen significantly with the announcement of two Fed rate cuts.
Today, the average HELOC rate is only 8.70%, almost a point and a half lower than it was in January. What if inflation continues to fall (October’s figure is due November 13), HELOC rates will likely continue to fall. And if the Fed announces a final rate cut for 2024 in December, as it almost certainly will, rates will likely end the year nearly two points lower than at the start.
That said, it is almost impossible to accurately predict future interest rate movements. If you know you need financing at this time and are comfortable with current rates, it makes sense to apply for a HELOC now.
Get started with an online HELOC today.
Why a HELOC May Be Better Than a Home Equity Loan Now
Right now, home equity loans actually have a slightly lower rate than HELOCs (8.41% versus 8.70% for HELOC). But HELOCs, thanks to this variable interest rate, are better positioned to take advantage of the current downturn environment. Home equity loan rates are fixed, meaning borrowers will have to refinance them (and pay 1% to 5% of the loan amount in closing costs) to obtain this lower rate.
Understanding this dynamic and the real potential for lower rates through 2025, borrowers may want to take a calculated risk by opening a HELOC instead of a home equity loan. This won’t be the right approach for everyone, but if you want to be best positioned to capitalize on what could be multiple rate cuts to come, a HELOC offers you the most optimal way to do so.
The essentials
HELOC interest rates have plunged about one and a half percentage points so far this year and many experts predict they will drop even further in December and into 2025. So if you want to borrow against home equity of your home but you also want to be able to take advantage of the current evolution of rates, a HELOC could be the preferred option. Also avoid the temptation to overborrow, as your home serves as collateral and you could put your property at risk if you are unable to repay the line of credit in full.
Do you have more questions about HELOC? Learn more here now.
