Home equity borrowing is becoming cheaper again. Interest rates on home equity lines of credit (HELOCs) are down by around 1.5 points since the start of the year, while rates on home equity loans have dropped by around half a percentage point since January. This is great news for borrowers, particularly knowing that the average homeowner has approximately $330,000 worth of equity right now. 

Still, the economic climate has been evolving all year as inflation declined and interest rate cuts started being issued. With one rate cut of 50 basis points issued in September and another quarter-point reduction in November, borrowers considering accessing their home equity may be wondering if they should delay action to better secure a lower interest rate. 

For a variety of reasons, however, that could be a mistake. Below, we’ll detail four risks associated with waiting for home equity loan interest rates to fall further.

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4 risks of waiting for home equity loan interest rates to fall further

The risks of waiting for home equity loan interest rates are numerous. Here are four of the biggest ones right now:

Rates could increase

Home equity loan interest rates, more so than mortgage interest rates, are closely tied to the federal funds rate. And that’s been reduced twice this year already. But inflation for October ticked up, which is something the Federal Reserve was hoping to avoid. If it rises again in November and December, then, the federal funds rate may be paused or, possibly, even hiked again. Waiting for this scenario to become more realistic would be risky, particularly when you can still secure the lowest home equity loan rate in years right now.

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Your debt may become unmanageable

Credit card interest rates just surged to an average of slightly over 23%. So if you were planning to use your home equity to consolidate your debt or to pay it off, waiting would be risky as your outstanding debt balance could quickly become unmanageable. With the holiday season quickly approaching and a forecast of higher spending versus 2023, it’s highly unlikely that waiting for a slight reduction in a home equity loan rate will offset any additional growth in your already expensive debt. 

You could delay a tax deduction

Waiting for an unknown interest rate will also delay a critical tax deduction, should you be planning on using your home equity for major home projects or repairs. That’s because the interest paid on home equity loans and HELOCs is tax-deductible if used for qualifying purposes. But if you wait until January 1 to secure your funding you won’t be able to write off any of the interest paid until you file your next tax return — in 2026. And, depending on your intended usage, that could mean a significant tax deduction delayed just to secure a slightly lower (but not guaranteed) interest rate. 

Your credit score could change

It’s important to remember that the home equity loan interest rates you see offered on lender websites are for those borrowers with the highest credit scores. If you have a good or great credit score now — but damage it by overspending during the holidays or by failing to repay high-interest debt — the home equity loan rate you’re ultimately offered may easily negate any potential future rate drops. 

This is a major risk of waiting to act. So, if you need the home equity funds now — and have a good enough credit score to qualify for today’s best rates — it may make sense to act promptly. 

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The bottom line

When borrowing money, there’s always an inherent risk in waiting to act versus being proactive. But with home equity borrowing, particularly in today’s unique economic climate, these risks become more pronounced. So weigh the above scenarios carefully against your financial needs right now to better determine which course of action works best for you. And consider speaking to a financial advisor or lender who can help answer any specific question you may have.