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interest rate it’s going down again, according to the Federal Reserve. On Thursday, the Fed issued another Cut to the federal funding leveltwice in the last three months. Currently in a range between 4.50% and 4.75%, the rate is down 75 basis points from early September and could drop again when the Fed meets for the last time in 2024 on December 17.
While these cuts will reduce what savers can afford high yield savings and certificate of deposit (CD)will help borrowers who have been competing for higher rates on various loan products. For those who are considering accessing it home equity now, or for those who already have a home equity line of credit (HELOC)this can be particularly beneficial. So what does the new Fed rate cut mean for HELOC interest rates? This is what we will discuss below.
See how low HELOC interest rates are right for you here.
What Fed rate cuts mean for HELOC interest rates
In short: The Fed’s latest rate cut is good news for HELOC interest rates and for borrowers who have decided to access home equity with a line of credit. That’s because HELOC rates tend to follow the Fed more closely than other products. Mortgage ratesfor example, influenced by factors such as 10-year Treasury yieldshas not dropped as significantly as home equity rates have been in recent months. But home equity rates are more in line with the path that federal funds rates are taking, so if HELOC rates are going down as well.
This can be clearly seen as HELOC rates change daily and variablethat means the HELOC rate you saw on the lender’s website earlier this week is likely lower today and may be lower next week. With additional cuts in December, the odds are close to 65% according to CME Group’s FedWatch tool, that HELOC rates may fall. And if the probability increases based on additional economic considerations, the lenders can start pricing in the reduction before it is officially published.
This is all positive news for people who haven’t applied for a HELOC and for those who have. Since HELOC rates change monthlyCurrent borrowers are likely to reduce future payments and, unlike home equity loans, they don’t need to refinance to secure lower rates because HELOCs adjust independently with no action required on the part of the borrower. For all these reasons, then, and with the average amount of home equityy is especially high now, now is a good time to open a HELOC.
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What about home equity loan rates?
Home equity loan rates will also fall with this latest Fed cut, but it is unlikely to be the same increase as the federal funds rate cut. However, home equity loan rates are slightly lower than HELOCs today (8.41% compared to the average HELOC of 8.70%). And home equity loan rates are fixed, meaning borrowers who take out loans now don’t have to worry about rate volatility in the future. At the same time, they will not be able to use the additional tariff deductions issued. So, borrowers should weigh the risks of waiting versus the low rates they can lock in now to determine the best option for their unique financial situation.
Bottom line
The Fed’s rate cut, however small the amount, is good news for all types of borrowers, but especially for those who have or are considering HELOCs. However, it’s important to remember that rates on home equity products are lower than most alternatives because the home is collateral – and you could lose it if you don’t pay back everything you’ve withdrawn. So go into your home equity loan situation with clarity and focus to avoid overborrowing from one of your most critical assets.
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