In the midst of the pandemic, record-low mortgage rates of around 3% launched Americans into a home-buying frenzy. And, as more and more buyers flocked to the market, housing prices skyrocketed while inventory plummeted. Soon after, inflation started drastically rising, prompting the Fed to take swift action.
Now, after 11 rate hikes since March 2022, the Federal Reserve’s benchmark rate is the highest it has been in 22 years. And while inflation is down compared to last year, mortgage rates have settled above 7% — so it’s a lot more expensive to buy a home right now. Housing inventory has also started to recover but is still at a level of about 50% of what it was before the pandemic: 670,000 vs. 1.2 million.
The combination of less buying power, inventory shortages and lingering elevated home prices have, in turn, sidelined many homebuyers. However, those who bought homes before prices and interest rates spiked are sitting on quite a bit of new home equity — about $199,000, on average — making it a great time to borrow from your home equity for home renovations, bill consolidation or other large expenses.
But if you’re going to borrow against your home equity with a home equity loan or home equity line of credit (HELOC), it’s important to know what could happen with home equity interest rates throughout the rest of this year and into 2024.
Home equity loan interest rate forecast: What experts predict for this year, 2024
If you’d like to tap into your equity to take on a new home improvement project, consolidate debt or something else entirely, you may be wondering if it’s agood timeto do so. Here’s what experts say abouthome equity ratesand what’s expected in the upcoming year.
The future of home equity loan interest rates
Home equity loan interest rates are tied to the Prime Rate, and like primary mortgages, are predicted to come down over the next year.
“Since inflation has begun to level off in the second half of the year, the next few years will present a better climate for reduced interest rates. For example, we’ll likely see a gradual dropoff between 2024 and 2025, though how much of a decrease remains to be seen,” says Jake Hill, CEO of DebtHammer.
Many forecasts suggest a 1% to 2% drop by 2025, Hill says.
Jay Sobo, founder of Liberty Financing, expects to see a similar trend.
“According to Fannie Mae, Fed Funds rates are expected to begin declining in Q1 of 2024 and could be about a full percent lower by the end of 2024. The MBA (Mortgage Bankers Association) also predicts a steep decline throughout 2024, ending with about a 1.5% drop from where we are today,” says Sobo.
But Brian J. Brady, vice president of Matthews Capital Markets, thinks we could see double-digit rates on home equity loans in late 2024.
“We’ve seen HELOC rates skyrocket these past 15 months as the Federal Reserve Bank Open Markets Committee (FOMC) has raised the discount rate 11 times. We may see HELOC rates rise another .5% as the FOMC raises the discount rate one to two more times. Expect HELOC rates in the 9’s and low double digits through December 2024,” Brady says.
As for what’s next, according to Brady?
“What goes up, however, does come down. As the economy slows and inflation is tamed, the FOMC will act quickly to lower the discount rate. HELOC rates should come down materially in late 2024 and into 2025,” says Brady.
How else can you borrow?
So what can you do if you don’t want to borrow against your home equity in the high-rate environment? If you have a 401(k) through your employer, you may be able to take out a low-interest loan against your retirement savings.
Another option for those who have mature permanent life insurance policies is to take out a loan against the cash value you’ve accumulated. Additionally, you could consider a personal loan. Competitive rates and large loan amounts are available to those with good-to-excellent credit.
The bottom line
There are a number of factors at play in terms of the interest rate environment, and that includes home equity rates. While some experts expect rates to decline throughout the next year, others are expecting home equity rates to hit double-digit figures by the end of 2024. So, if you’re considering a home equity loan or HELOC right now, it could be a good time to capitalize on the current rates being offered. Otherwise, you may end up paying more for your loan than you expected, should rates increase even more in the midst of an unusual economic climate and persistent inflation.