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Should you use your home equity now or wait for rates to drop?

It's probably not a good idea to wait for rates to fall to access your home's equity.  Getty Images/iStockphoto

There are several reasons to consider tapping into your home equity. These loans can be an effective way to cover the cost of home or car repairs or a higher education. You can also use them to pay off high interest debt at a lower rate and to cover just about any other large expense you may face. 

On the other hand, interest rates are high at the moment - and the more you read, the more you likely come across predictions that rates will start to fall in the near future. So naturally, you may be wondering if now is the time to tap into your home equity or if you should wait for better interest rates to materialize first. Below, we'll discuss whether it's worth waiting for rates to drop before tapping into your home equity.

Find out how affordable borrowing against your home equity might be now

Should you use your home equity now or wait for rates to drop?

"All things being equal, lower rates are obviously better - but things aren't always equal," explains Joe Salerno, MBA, co-founder and chief investment officer at Yardsworth, a real estate financing company. 

In most cases, you should get a home equity loan when you need one - regardless of the current interest rate environment. Here's why it's probably best not to wait for rates to fall before you tap into your home equity: 

Your needs won't wait for lower rates

Tapping into your home equity is a big decision and you're likely making that decision to meet a specific need. For example, you may decide that it's time to tap into your equity if your roof develops a leak and you don't want to use high-interest personal loans and credit cards to cover the cost of repairs. 

With that in mind, the first reason not to wait to borrow against your home equity is because the need you plan on using it to alleviate probably won't wait. After all, in the example above, waiting to fix a leaky roof could lead to excessive interior water damage - likely making your eventual repairs significantly more expensive. But the above is just one of many needs that you could alleviate with a home equity loan.

Tap into your home equity to take care of expenses that can't wait today

You don't have to lock in today's high interest rates

If you take out a home equity loan, you'll lock in today's rates for the term of the loan (or until you refinance it). However, you don't have to lock in today's high rates in order to access your home equity. 

A home equity line of credit (HELOC) gives you the opportunity to tap into your equity without locking in your interest rate. One "feature of HELOCs worth understanding in today's market, is that they are variable interest rates," explains Salerno. "While that unfortunately means that you'll potentially pay double-digit rates on a HELOC today, the positive corollary is that you will see your interest burden decline over the next twelve months as the Fed begins to cut interest rates." 

There's no telling when, or how far, rates will fall

Based on the current inflationary environment, experts are predicting that the Federal Reserve will begin to cut interest rates in June. But experts don't always hit the nail on the head. In fact, economists expected that the January inflation rate would come in at 2.9% while the actual inflation rate was at 3.1%. 

The simple fact is that economic conditions are often unpredictable - even for the most educated of minds. So, while rates are expected to start falling in June, there's no telling when the Federal Reserve will actually make its first move.  

"Waiting for rates to drop to tap into your home equity often doesn't make sense because, like most things, it's nearly impossible to time the market perfectly," explains Darren Tooley, senior loan officer at Cornerstone Financial Services. "Rates are projected to go down over the coming months and years, but even if rates do drop as anticipated, it's not going to be a straight line down and several economic and social factors can either speed up or delay the timeframe."

You may be able to refinance when rates fall

Interest rates are high at the moment, and there's a strong argument that they'll fall ahead. On the other hand, taking out a home equity loan today doesn't necessarily mean you'll have to keep today's high rate until you pay the loan off. You may be able to refinance it in the future when rates fall. 

Learn more about your home equity loan and HELOC options now

The bottom line

When you need access to your home equity, there's a high likelihood that you'll need money relatively quickly. So, waiting for interest rates to fall probably isn't advantageous. However, tapping into your equity now doesn't mean you have to pay a high interest rate until you pay the debt off completely. Consider taking advantage of the variable nature of HELOCs or planning to refinance your home equity loan when rates fall rather than waiting to access the cash you need. 

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