However, it’s not totally in your control.
Interest rates are impacted by several factors.
Both products act as second mortgages, using your home as collateral for the loan.
The Fed doesn’t set rates for home equity loans or lines of credit directly.
In a weaker economy, the Fed wouldlower rates to boost economic activity.
In a growing economy, the Fed would raise rates to guard against inflation.
Other economic factors, like the job market, can also impact the rates set by banks.
There’s also a difference in how the Fed’s policy changes impact HELOCs versus home equity loans.
Interest rates on new home equity loans, though, will reflect any policy changes by the Fed.
Why is the Fed cutting interest rates?
The higher rates also led to increased rates for home equity loans.
Today,average home equity ratesare in the mid-8% range.
As inflation started to cool consistently, the Fed began slashing interest rates.
The goal is to adjust rates just enough so that inflation doesn’t reheat and unemployment doesn’t skyrocket.
The lower your credit score, the higher your interest rate is likely to be.
It also matters what other debts you have.
Fundamentally, how you leverage your home equity for financing hinges on why you need the money.
Even with a good rate, a home equity loan or HELOCalways involves some risk.
