Why you should get a home equity loan with interest rates on hold
Borrowers hoping for some interest rate relief will have to wait a bit longer after the Federal Reserve on Wednesday announced that they were keeping their benchmark interest rate the same. Already stuck at a 23-year high between 5.25% and 5.50%, the pause further delays any help borrowers were hoping for, keeping rates on mortgages, credit cards, and other debts elevated.
There is, however, one low-cost option that can still be beneficial now: your home equity.
Homeowners can access this funding in multiple ways, with home equity loans and home equity lines of credit (HELOCs) being two of the most common. And with interest rates paused right now, there's a compelling case to be made for acting now. Below, we'll break down three reasons why you should get a home equity loan with interest rates paused.
See how much you could access with a home equity loan here now.
Why you should get a home equity loan with interest rates paused
Here are three reasons why homeowners should consider getting a home equity loan with interest rates on hold.
Rates are still low
Compare today's home equity loan rates to the alternatives. Credit cards hover around 20% right now while personal loans are around 12%. Home equity loans, however, are just 8.63%. And while the Fed doesn't directly dictate borrowing rates, their pause will ensure that rates on home equity borrowing products will remain low for now.
But the economy can change and, if inflation ticks up again, an interest rate hike remains possible. It makes sense, then, to act before that possibility makes this borrowing option problematic.
See what home equity loan rate you could secure online today.
You can use it to pay down other debt
With today's low home equity loan rates on pause, it may make sense to tap into your existing equity to pay off other, higher-interest debt, especially considering that those high rates will be frozen, too. Do the math to determine what you're currently paying in interest on credit cards, personal loans and other debts. Then see what you'd pay if you used a home equity loan to pay those off, instead.
You may be surprised at the potential savings. Just be sure to use the equity to pay the debt versus using it for other non-critical purposes. If you don't, you could wind up just adding to the debt cycle versus effectively ending it.
Your window of opportunity may be closing
Optimism surrounding potential interest rate cuts was strong at the start of 2024 but that's faded significantly in the face of multiple disappointing reports showing inflation running hot again. And, if additional reports continue to show inflation sticky, it's possible that interest rate hikes could be back in play. This would then raise rates on home equity loans, too.
So, the window of opportunity to secure a borrowing option with rates in the single digits may be closing, possibly as soon as June. Consider being proactive to avoid that increasingly likely scenario.
Explore your home equity loan options online today.
The bottom line
While an interest rate pause isn't as attractive as an interest rate cut, borrowers can still take advantage by using their home equity instead of other, costlier alternatives. Home equity loan rates are still comparatively low right now and you can use this option to pay down other, more expensive debt. But with inflation sticky and the potential for yet another interest rate hike higher than many would prefer, the window of opportunity to truly take advantage of home equity loans is closing. As with all financial decisions, however, it's important to weigh the pros and cons of home equity loans, especially because your home will be the collateral in these circumstances. But if you can afford to repay what you borrow, it makes sense to pursue this option now.
