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In the post-pandemic era, Home Equity Loan Rates and Home Equity Line of Credit (HELOC) Rates The increase was due to the Federal Reserve raising its benchmark interest rate. Although it costs money, home equity loan and HELOC Although it remained affordable compared to credit cards and personal loans, interest rates were much higher than they had been in decades.
But now the Fed has changed its policy and Interest rate set at 50 basis points at September meeting This suggests further interest rate increases. HELOC interest rates and home equity loan interest rates are both began to declineencourage new interest in new loan And many borrowers are wondering if now is a good time. refinance an existing mortgage.
If you're wondering whether to move forward with refinancing, it can be helpful to know what experts have to say on the matter.
See how low home equity loan rates are today here.
Should you refinance your home equity loan now that interest rates have been lowered?
The decision to refinance a home equity loan depends on several important factors. Here's when this makes sense (and when it doesn't):
Why you should refinance your home loan now
Refinancing involves getting a new home equity loan to pay off your existing debt. Whether this makes sense depends on when you first took out your loan and the interest rate you're currently paying.
“If you're talking about a fixed-rate home equity loan, your interest rate today could be the same or slightly higher, depending on when you took it out,” said Colorado-based Churchill Mortgage.・Specialist Neil Christiansen says: .
However, for those who borrowed when interest rates peaked, the opportunity to reduce borrowing costs may be worth taking advantage of. “If you're looking to refinance to a lower interest rate than you currently have, now may be a good time,” says Domenic D'Andrea, AIF, CRC, CPFA, co-founder of Dandara Wealth Management.
D'Andrea noted that interest rates could continue to fall as the Federal Reserve moves forward with further rate cuts this year and next, but the reality is that waiting months to refinance could result in significant extra costs in loan repayments. It is possible to spend a large amount of money. I'm saving a little money now. In this situation, a delay doesn't necessarily make sense.
Your initial reason for taking out a home equity loan can also influence whether you should move forward now. “If a home equity line is used to create value through property renovation work, we will refinance it in the coming months or year,” said Jess Schulman, president and chief operating officer of Bluebird Lending. That makes a lot of sense.”
Schulman said the rate cut would likely lead to increased competition in the housing market, which would drive up prices and positively impact refinance loan rates. “Using these higher value comps for appraisals, along with completed renovations, can result in lower leverage on the loan and potentially even better interest rates in today’s market.”
There's also one more factor to consider if you're using a HELOC instead of a home equity loan with an upfront lump sum. “If the HELOC was borrowed several years ago, it may make sense to use the new valuation to reset the higher credit limit and eventually gain access to additional funds. No. In that situation, refinancing the HELOC would make sense,” Christiansen said.
Learn more about the best home equity refinancing options here.
Why you shouldn't refinance your home loan now
Refinancing makes sense if you can get a lower interest rate, but the big question is how much you can save and whether you can grow your savings if you postpone.
In reality, Costs associated with refinancing a home equity loanAnd paying them only makes sense if you can realize significant savings.
“You need to calculate whether it's wise to pay the cost of a new loan. If the payback time is more than 3-5 years, stay where you are and reinvest the money you would have spent. It would make more sense to consider 'considering the cost of refinancing somewhere that can offer a better return,''' Christiansen said.
The possibility of future rate cuts also means that procrastination could pay off.
“If you have a fixed-rate home equity loan that you took out in the past year or so, your interest rate may be high. Now that the Fed has started lowering rates, you may want to prepare to refinance your loan. “Maybe” – but that’s not the case right now,” advised Melissa Cohn, regional vice president at William LaVeiss Mortgage. “With the Fed cutting rates again this year and expected to make multiple cuts in 2025, you may want to wait for rates to drop before pulling the trigger,” Cohn said. He explained that it would be better to wait for subsequent interest rate declines before locking in, as it would be pointless to repeat the exercise due to the high costs involved.
conclusion
Ultimately, only you can decide whether it makes sense to move forward now or delay. If you can lower your rates now to ease your financial burden, it's better to cut costs sooner rather than later. But with a little patience, the Fed's planned interest rate cuts in 2024 and 2025 could pay off.
