While millions of Americans struggled to find a reliable and cost-effective way to borrow money in recent years, homeowners had a relatively inexpensive source of funding close by – their home equity. With a home equity loan or home equity line of credit (HELOC), homeowners were able to tap into near-record levels of accumulated equity and they were able to do with interest rates many points lower than were available with personal loans and credit cards, for example. 

And now, after the Federal Reserve issued a rate cut in September, and with other reductions looking likely for November and December, this unique borrowing option could become even more affordable. But that doesn’t mean it should be approached carelessly, either. Instead, there are some smart moves homeowners should make now to take advantage of this more favorable rate climate. And there are some important mistakes to avoid that can help them better capitalize on the moment. Below, we’ll break down three home equity loan mistakes to avoid now that rates are cut.

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3 home equity loan mistakes to avoid now that rates are cut

Don’t have today’s low home equity loan rates negated by making these three simple but easy-to-make mistakes:

Waiting for rates to fall

For starters, there’s no guarantee that home equity loan rates will fall much further than they already have. While it appears likely that they will, any changes in the broader economy could slow that potential and possibly halt it in its entirety. Home equity loan rates are already much lower than most alternatives and HELOCs have variable rates that will automatically fall as rates do. Just don’t wait for them to fall much further as there’s no telling when they’ll fall or how much they actually will.

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Looking at the rate only

When comparing home equity loans and HELOCs it may seem like an easy choice. After all, home equity loan rates are averaging 8.37% right now while HELOCs are at 8.94%. But the rate isn’t the only thing you should be accounting for. As noted, HELOCs have variable rates that change monthly. So if you lock in a home equity loan rate now, and rates fall in November, you’ll still be paying the initial, higher home equity loan rate unless you pay to refinance. 

HELOCs, however, can adjust on their own, which is a major advantage in what appears to be a cooling rate climate. That said, HELOC rates can adjust upward as easily as they can fall, so you’ll need to weigh your risk appetite against the lower home equity loan rate you can lock in now to better determine your course of action. 

Borrowing more than you can afford

While a personal loan and credit card do come with much higher interest rates than home equity loans do, they have a distinct advantage that the latter does not – you won’t lose your home if you can’t repay what you borrowed. Remember that home equity loans and HELOCs use your home as collateral in these borrowing circumstances. That’s a large contributor to the lower rates that are offered to borrowers. So be careful that you only borrow precisely what you can afford to repay, even with today’s lower rates obfuscating the risks of using your home equity.

The bottom line

Now is an exciting time for borrowers, particularly for homeowners who have an opportunity to access a low interest rate home equity loan. To take advantage of this timely opportunity, however, borrowers should avoid waiting for an ideal rate to appear and consider being proactive now, instead. They should also look at more than just the rate as the way these loans work plays a large role in their benefits to the borrower. And with their house on the line, they should be extra careful to only borrow what they can easily afford to repay. By avoiding these mistakes now, home equity loan users will better position themselves for financial success both now and over the full repayment period.