HELOC rates just fell again. Here's what homeowners should do now.
Interest rates on home equity lines of credit (HELOCs) are continuing to decline. That was the big takeaway this week after a new report from Bankrate showed rates on the popular borrowing product drop to a low of 8.06%. The news comes after HELOC rates dropped from approximately 10% at the start of 2024. After declining for much of last year, rates on the line of credit hit an 18-month low in January and a two-year low in February – both of which have since been surpassed at the start of March.
That said, a consistently declining interest rate on a borrowing product is somewhat of an anomaly right now. So homeowners in need of extra financing should consider ways to take advantage of this timely opportunity. Below, we'll break down three things homeowners should do now that HELOC rates have fallen again.
Start by seeing how much home equity you could withdraw with a HELOC here.
What homeowners should do with HELOC rates falling again
With HELOC rates on a steady decline, interested borrowers should consider making these three timely moves right now:
Determine precise affordability
Whether using a home equity loan or HELOC, your home functions as collateral. So, in theory, you could lose it to the lender if you're unable to make all of your repayments as agreed upon. It's critical, then, to determine your precise affordability. But this can be tricky to do with a HELOC since it has a variable rate that will adjust each month for borrowers. Understanding this dynamic, then, prospective borrowers should calculate their potential costs tied to a series of realistic interest rate scenarios – not just what's available now that rates have declined.
By calculating future repayment costs tied to a variety of rates, homeowners can more accurately gauge their affordability, helping to better determine if this is really the right borrowing product right now … or if it just appears to be.
See what HELOC rate you'd qualify for now.
Shop around for lenders
You don't have to use your current mortgage lender to secure a HELOC, nor should you. With a different bank, you may be able to find significantly lower interest rates and better terms. But you won't know this until you shop around for lenders, so consider doing so after you've determined the line of credit amount you need. By getting offers from at least three other lenders, you can then return to your current mortgage lender to see if they'd be willing to beat the offer. And with rates here variable and on an overall decline, you may be surprised at how competitive offers may soon become to obtain your business.
Avoid making simple mistakes
HELOCs can be effective and valuable borrowing tools but they don't come risk-free. Borrowers will want to avoid making some simple mistakes this month, then, to take advantage of all that the tool offers. That means acting aggressively and not waiting for rates to fall further (rates will adjust independently anyway once you've secured the HELOC). But it also means understanding the timing around HELOC tax benefits in order to optimize your tax deduction eligibility. By avoiding these errors now, early in the borrowing process, you'll maximize your chances of success over the extended 10- or 15-year HELOC repayment period.
The bottom line
With HELOC rates steadily declining, interested homeowners should exploit the timely opportunity by making the above three strategic moves now. By doing so, homeowners can gain access to the funds they need now with the safety and knowledge of knowing that they can easily make repayments as needed in the future.
