After a relatively steady path downward for most of the year, inflation rose again in October, according to a Thursday reading from the Bureau of Labor Statistics. Now at 2.6%, the rate increased by two-tenths of a percentage point, up from September’s 2.4%. 

Perhaps more importantly, that came after the Federal Reserve issued a 50 basis point cut to the federal funds rate in September and before another one was issued in November. This means that inflation may be a bit stickier than initially expected – or this could be a temporary blip on the Fed’s path toward its 2% target goal. Only time will tell.

Against this backdrop, borrowers considering a home equity loan may be hesitant to act. After all, a steady increase in inflation could cause interest rates to rise again, making this unique product more expensive than it currently is. Understanding this dynamic, it’s helpful to understand if it’s worth opening a home equity loan with inflation rising again. Below, we’ll explain why it may still be.

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Should you open a home equity loan with inflation rising again?

Not sure if now is still a good time to open a home equity loan. Here are three reasons why it may be worth pursuing even after the recent uptick in inflation:

Rate cuts are still expected

While many borrowers may have become accustomed to interest rate hikes alongside a rise in inflation, that may not be the case this time around. Right now, interest rate cuts are still expected for the Fed’s final 2024 meeting in December. The CME Group’s FedWatch tool pegs it at a 75% chance currently. That would bring the federal funds rate down from a range of 4.50% to 4.75% currently to 4.25% to 4.50%. 

That’s not a major reduction, but it will still be better than a rise – and it will make home equity loans even cheaper than they currently are. That said, additional economic data yet to be released could change that forecast. So if you’re considering a home equity loan now it makes sense to be proactive.

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Your financial needs can’t wait

If you’re one of the millions of Americans feeling the financial burden of inflation and higher interest rates, your financial needs may not be able to be put off any further, even with the prospect of lower interest rates ahead. And with the average home equity amount hovering near $330,000, there’s a good chance that you have plenty of equity to utilize now. Consider acting now, then, to improve your financial health. 

Home equity loans are still cheaper than the alternatives

The average home equity loan interest rate is 8.41% as of November 14. That’s almost three times cheaper than credit cards (averaging around 23% currently) and about five points cheaper than personal loans (averaging around 13%). Compared to the alternatives, then, home equity loans are still significantly cheaper. 

That noted, part of the reason why these products are less expensive has to do with the way they’re borrowed, specifically with the home in question serving as collateral. That’s why it’s critical that borrowers be able to repay all that they’ve withdrawn or they could risk losing their home to the lender in the process. 

The bottom line

A rise in the inflation rate isn’t a positive development for borrowers but that doesn’t mean that your options are now limited, either. Home equity loans, in particular, can still be valuable for a variety of reasons. Waiting to act, however, could be problematic if the latest inflation report proves to be a sign of additional economic issues on the horizon. Understanding this potential, prospective borrowers would be well served by exploring their home equity loan options now, while rates are still relatively stable.

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