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Should you take out a mortgage loan now or wait until 2025?
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For most of 2023 and early 2024, looking for a low mortgage rate was a quest for the impossible. Surging inflation sent rates soaring to their highest level in decades and finding a loan under 7.00% was a fantasy for most would-be buyers.
Fortunately, there has been some improvement in the mortgage market in recent months. In anticipation of the Federal Reserve’s rate cuts in September, mortgage rates dipped, opening up the door to more affordable home loans and even some refinancing opportunities. Rates then fell over a point off their post-pandemic highs, providing hope for would-be buyers.
However, mortgage rates began to rise again in October. While today’s mortgage rates remain below recent highs right now, many borrowers have been left wondering whether they should jump into the market or wait for rates to fall further — especially as the Fed has signaled additional rate cuts are likely through 2025.
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Should you take out a mortgage loan now or wait until 2025?
If you’re on the fence about whether to buy now or delay further, here’s why experts say that waiting may not pay.
There’s no guarantee rates will fall
With the Federal Reserve widely expected to cut rates again in the future, waiting may seem like the obvious course of action. However, there’s no guarantee these anticipated rate cuts will happen — or that they will have the desired effect on the mortgage market since the Fed doesn’t directly control the cost of home loans.
“The challenge with “waiting to buy” is always the same. No one can predict the future, even the greatest financial minds,” says Aaron Gordon, branch manager at Guild Mortgage. “Just look at the last two months. Rates touched an 18-month low in early September. Folks got excited. Pending sales rose to their highest levels all year. Others said ‘they’re still not low enough. I’m going to wait a little longer until they come down more.’ Just weeks later they jumped from the low 6’s to the low 7’s.”
While the Fed followed through with an anticipated rate cut at its November meeting, the recent election could also impact further proposed reductions in the benchmark rate, depending on what policies are enacted in 2025.
With no guarantee that mortgage rates will fall further, Gordon says the best thing to do is to buy “when you’re financially and emotionally ready.”
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Rate decreases may happen slowly
Delaying your home purchase in anticipation of declining costs could also be a poor strategy because you may have to wait much longer than you’d expect.
“Rates between now and the start of the new year aren’t likely to fluctuate too significantly,” says Evan Luchaco, an Oregon-based home loan specialist for Churchill Mortgage.
Chris Birk, vice president of mortgage insight at Veterans United Home Loans, also doesn’t believe a drop in rates is imminent next year either.
“Buyers waiting for a major drop in mortgage rates should understand that a sudden decline isn’t likely around the corner,” Birk says. “If mortgage rates come down in 2025, it’ll likely be a slow roll.”
Delaying your dream of homeownership for months means missing out on the chance to start building equity — and potentially missing out on a property you love.
“Finding the right home is the most important aspect of the home buying process,” Luchaco says. “A home that achieves your goals for the immediate future will help get you to where you want to be long term.”
Lower mortgage rates could cause a spike in home prices
There’s another important financial reason not to put off your purchase. While a lower mortgage rate could mean reduced borrowing costs, this could be offset by changes in the housing market that a rate drop brings.
“Waiting to buy might not wind up being worth it for a simple reason – rising home prices,” Birk says. “Depending on your price range, your market, and other factors, higher home prices might offset any dip in interest rates. The $400,000 house you love today might cost way more next summer between home price appreciation and the crush of buyers that lower rates might bring.”
Darren Tooley, a senior loan officer at Cornerstone Financial Services, notes that prices could rise rapidly next year.
“Historically, home values have gone up 6.24% in the year following a presidential election, but 2025 could exceed that due to the limited housing supply and an increase in buyer competition,” Tooley says.
According to Tooley, mortgage applications increased by almost 50% when rates hit recent lows at the end of September. While some of this change was explained by a spike in refinancing, most of the new loans were for new purchases.
“It’s clear when rates go down, more potential homebuyers will be flooding the market, which will ultimately continue to drive up home prices, making things more expensive next year despite the lower rate,” Tooley says.
The bottom line
Finally, there’s one last important reason not to delay. Buying a home now allows you to lock in today’s prices while opening up the door for a more affordable loan later.
“Today’s homebuyers will almost certainly be able to refinance down the road,” Birk said. “Buying today, with the flexibility to refinance later, could offer a balanced path forward in an uncertain rate environment.”
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Homeowners looking to access a large sum of money in today’s economic climate don’t have to look too far to find it. By turning to their accumulated home equity, owners can potentially finance a major expense (or multiple major expenses) simply by using the money they already have via their home’s value.
While there are multiple ways to do this, many may be considering a traditional mortgage refinance or cash-out refinance. But in today’s unique and constantly changing interest rate climate, that could prove to be a costly mistake. Instead, right now, both home equity loans and home equity lines of credit (HELOCs) are arguably better than refinancing. Below, we’ll explain why.
Start by seeing what home equity loan interest rate you could qualify for here.
Why home equity loans are better than refinancing right now
Here are three reasons why a home equity loan may be more beneficial than a refinance now:
You’ll maintain your existing mortgage rate
The average home equity loan interest rate is 8.41% as of November 19, 2024, but the average mortgage refinance rate for a 30-year loan is 6.93%. So, on the surface, it appears that refinancing is cheaper. But that refinance rate will require you to exchange your current mortgage rate to get the new one.
That could be a costly mistake if you have a rate under 6.93%, as millions of Americans do right now. By applying for a home equity loan, however, you’ll still gain access to your equity, but you won’t need to bump your mortgage rate to get it. And if home equity loan rates drop in the future, as they have for most of 2024, you can simply refinance your loan to the better rate then.
Get started with a home equity loan online today.
You may qualify for a tax deduction
When you use a cash-out refinance, you apply for a loan larger than what you currently owe to your lender. You then use the former to pay off the latter and keep the difference as cash for yourself. Interest paid on mortgage loans is tax-deductible, but so is the interest on home equity loans if used for qualifying purposes. At that higher interest rate, you may qualify for a larger deduction (while still maintaining your current lower mortgage rate).
The average home equity amount is high right now
A combination of low mortgage interest rates during the pandemic, a drop in available inventory and a hesitation to sell now that rates are high again (amid other complex but interrelated factors) has caused the average home equity amount to soar to just under $330,000 right now. If you want to access that with a refinance, as noted, you’ll need to give up your current mortgage rate to do so. And if you want to access it via a credit card or personal loan, the restrictions will be significant. It makes sense, then, to take advantage by using a home equity loan or HELOC instead of taking a gamble with a refinance right now.
The bottom line
With mortgage refinance rates elevated, the unique feature of a potential tax deduction tied to home equity borrowing and a six-figure average equity sum available now, for many homeowners in need of financing it makes sense to skip a refinance for a home equity loan now. That said, this type of financing is tied to your most important financial asset so the decision to withdraw it from it should be carefully weighed against the risks. Consider speaking to a financial advisor or home equity lender who can answer any questions you may have before getting started.
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Home equity is calculated by deducting your existing mortgage loan balance from your home’s current value. And, in today’s unique economic climate, that calculation has led to the average homeowner accumulating approximately $330,000 worth of equity.
This can be accessed in a variety of ways, with both home equity loans and home equity lines of credit (HELOCs) being two of the less expensive options. Still, your home serves as collateral in these borrowing exchanges, so it’s critical that you use the money for the right reasons or you could jeopardize your homeownership if you fail to repay all that was withdrawn.
Fortunately, in the final weeks of 2024, there are still smart ways to use this home equity, some of which are more timely than others. Below, we’ll detail three great ways homeowners can start using their home equity before January 1, 2025.
Start by seeing what home equity loan interest rate you’d be eligible for here.
3 great ways to use home equity in the final weeks of 2024
Here are three smart — and effective — ways homeowners can utilize their home equity in the waning weeks of 2024:
Home projects
Not every home project is worth utilizing home equity for, particularly those that you can afford to pay for comfortably out of your everyday budget. For other, larger ones, however, it makes sense to turn to home equity. That’s because select home improvements and repairs can qualify for a tax deduction.
In other words, interest paid on home equity loans and HELOCs can be tax-deductible if used for qualifying home projects. So if that’s your intended purpose, consider applying now. If you wait much longer, you may not get the funds disbursed in time to qualify for the tax deduction in 2024 — meaning you’ll delay the deduction until you file your next tax return in the spring of 2026.
Get started with a home equity loan online today.
Credit card debt consolidation
Credit card interest rates have been on a steady upward trend, the latest coming in recent weeks with the average interest rate soaring to 23.37%. So, if you have significant credit card debt (and many Americans do currently), it’s worth consolidating with a home equity loan or HELOC now, especially when considering that both products come with interest rates almost three times lower than the average credit card rate. This is traditionally one of the smarter ways to use home equity, but it’s particularly critical today, with credit card interest rates at a record high and with a minuscule likelihood of those rates falling.
Business opportunities
A new year could mean new business opportunities to explore, and that often requires the need for startup capital to fund these possibilities. Home equity loans and HELOCs can provide that source of funding in a much more affordable way than a personal loan, with a near 13% average interest rate, could.
And even if the need for this funding isn’t until the first quarter of 2025, it makes sense to take steps now, considering that it may be weeks until your home equity funds are disbursed. Start by ensuring your credit is in top shape. Then determine your exact financial needs and start shopping for lenders (since you don’t need to use your current mortgage lender) to improve your chances of finding the lowest rates and best terms.
Start shopping for home equity loans here.
The bottom line
Because your home is on the line when tapping into your home equity, it’s important to only utilize it for appropriate means. But in the final weeks of 2024, there are still timely and effective uses for this financing. Home repairs, debt consolidation, new business opportunities or a mix of all three could be smart reasons to use home equity now, positioning yourself for financial success into 2025 and beyond.
