Homeowners can turn their home’s equity into cash with a home equity line of credit, or HELOC.
A HELOC is a type of loan that offers you access to a revolving line of credit that you can tap as needed. HELOCs usually have variable interest rates that fluctuate based on market conditions, a major one being the Federal Reserve’s key short-term interest rate, the federal funds rate.
To rein in price growth, the Fed has hiked the federal funds rate 10 times since March 2022. This has affected rates tied to HELOCs, bringing them well above 8% and making them less enticing for borrowers.
During its July 25 meeting, the Fed is poised to increase rates yet again, meaning HELOC rates will get more expensive. If you have a minimum of 15% to 20% equity in your home, you can use a HELOC to help you cover a large expense, from a renovation project to an unexpected emergency.
Just be certain that you have a repayment plan in place. Because HELOCs are secured loans that use your property as collateral, you run the risk of losing your home if you can’t make the payments.
Read also: 10 ways to get the best HELOC rate
Heloc Trends and Rates:
The most recent Consumer Price Index shows annual inflation at 3% for the 12-month period ending in June, which is the lowest it’s been since early 2021. HELOC rates are higher than they were two years ago, but they may not rise much more in 2023.
The central bank may only initiate one or two more rate increases this year, said Chuck Meier, senior vice president and director of mortgage sales at Sunrise Banks. Because the Fed isn’t expected to cut rates anytime soon, HELOC rates are likely to stay elevated for a while.
If you can wait until 2024, rates should start coming down by then, according to Jason Kopcak, CEO of Altisource Asset Management. Banks could then start offering more competitive loan terms, and HELOCs would become a more affordable option for homeowners.
Read also: Best HELOC Rates Of July 2023