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Will HELOC interest rates continue dropping this December?
Interest rates on both home equity loans and home equity lines of credit (HELOCs) have been on a steady decline for most of 2024, providing homeowners a cost-effective way to borrow money when rates on other products surged. HELOCs, in particular, have hit multiple 2024 lows as of late, making them an attractive option for homeowners who don’t want to be burdened with the fixed rate that a home equity loan comes with. HELOCs, on the other hand, have variable rates that will change every month. And homeowners won’t need to pay to refinance to secure the lower rate as the line of credit will adjust independently.
Understanding this dynamic, then, both current borrowers and those homeowners exploring their possible HELOC options may be wondering about the potential for HELOC interest rates to fall further this December and into 2025. While predicting the future of interest rates is exactly that – a prediction – there is a strong likelihood that HELOC interest rates will continue to trickle downward. Below, we’ll explain why.
See what HELOC interest rate you’d be eligible for here.
Will HELOC interest rates continue dropping this December?
HELOC interest rates are driven by a wide range of complex and interrelated factors. Here’s how rates on this product could fall even further this month, even if by a marginal degree:
Inflation could continue to drop. The latest inflation reading for October showed the rate increasing to 2.6%, more than half a percentage point above where the Federal Reserve would like it to be. But if the new report, scheduled for a December 11 release, shows inflation falling again, it could encourage lenders to start reducing their rate offers across products, including those on HELOCs. That said, an inflation reading is only one of a multitude of influencers and it is possible that other economic data could negatively affect HELOC rates, too. But if inflation looks encouraging, lenders may start reducing their HELOC rates in advance of a formal Fed rate cut later in the month.
Explore your current HELOC options online now.
The Fed could continue cutting interest rates. This factor comes in combination with the above one. But a 25 basis point cut to the federal funds rate for when the Fed meets again on December 17 and December 18 is becoming increasingly likely. The CME Group’s FedWatch tool has a cut listed at an 86% likelihood currently. And it will become a virtual certainty between now and then should other economic data encouraging a rate cut be released. That all noted, many lenders may have already started pricing in these presumed rate cuts into their current offers, meaning that what you see listed on online lender marketplaces after December 18 may not be materially different from what you saw listed in the days leading up to the final Fed meeting of 2024.
What about a home equity loan?
Home equity loans are also worth exploring now, albeit with the recognition that they won’t be as cost-effective in a cooling rate climate as a HELOC will be. With their fixed interest rates, borrowers will need to wait for rates to fall significantly to make a refinance worth the time and money. On the other hand, rates on home equity loans are averaging 8.40% now for qualified borrowers, 15 basis points lower than the average 8.55% HELOC rate. And while that may not seem to be much, it can add up to significant savings over a 10 or 15-year repayment period. So it’s worth exploring this home equity borrowing alternative, too, before formally applying for either.
The bottom line
The downward trend HELOC interest rates have been on in the first 11-plus months of 2024 could continue this December, assuming some influencing economic factors break in a certain way. At the same time, home equity loans are slightly cheaper now and they come with the security of a fixed interest rate, which may be attractive for borrowers in today’s evolving rate climate. So explore both before applying – and remember that your home functions as collateral in these borrowing exchanges, making it critical that you only withdraw an amount you can easily afford to pay back to the lender.
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