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A home equity loan can be an affordable and effective borrowing tool in most economic climates, especially in recent years. While interest rates on unsecured debt types like credit cards and personal loans surged, rates on home equity loans remained relatively low. Thanks to the home functioning as collateral, lenders tend to offer much lower rates to borrowers. And that’s been clearly illustrated in recent months with home equity loan rates around three times cheaper than credit card rates for qualified borrowers, making it a smart way to borrow a large amount of money right now.
But the timing surrounding a home equity loan application is important to get right, particularly now with inflation rising again and interest rate reductions delayed. With another inflation report scheduled to be released on March 12, then, and the next Federal Reserve policy meeting to discuss interest rates set for March 18 and March 19, prospective borrowers may be wondering if they should open a home equity loan now – or wait for rates to potentially fall further. Below, we’ll break down what to consider before formally applying.
Start by seeing how much home equity you could borrow here now.
Should you open a home equity loan before the March Fed meeting?
Home equity loan interest rates are driven by multiple factors , with the Fed’s monetary policy being a key one. If the Fed increases its federal funds rate, it will cause rates on many borrowing products to rise, with home equity loans not being immune. In this scenario, then, it may behoove potential borrowers to act aggressively to lock in a low home equity loan rate now. And that’s easy to do since home equity loan rates are fixed and will remain the same unless refinanced. That said, right now, most borrowers shouldn’t feel an urge to accept the first offer they receive from a lender.
Most economists expect the Fed to maintain rates at its March meeting, keeping the benchmark rate unchanged at a range between 4.25% and 4.50%. The CME Group’s FedWatch tool has a rate pause listed at a 97% certainty as of March 10. So those homeowners seriously contemplating borrowing with a home equity loan shouldn’t be concerned about having to rush into an application.
But that doesn’t mean that they should wait much longer to act, either. Home equity loan rates were over 9% in early 2024 and are averaging just 8.40% now, so they’re much cheaper. But economic factors could easily change that trajectory and cause them to rise again, particularly if the February inflation reading shows a fifth consecutive monthly rise. Understanding this volatility, but with the knowledge that rates are likely to remain relatively stable this March, homeowners should use this time to shop around for rates and lenders. Despite what some homeowners may believe, you can use a different bank than the one you have your mortgage with. So shop around to find the lowest rate and best terms for your individual situation. Since the rate climate can be fluid and subject to change without much notice, it’s important to use this time in a strategic and nuanced way.
See what home equity loan rate you could secure here.
The bottom line
The decision to open a home equity loan is a personal one but the timing surrounding an application is largely determined by the economy and market conditions. Still, with interest rates expected to remain steady this March, interested homeowners won’t need to worry about acting aggressively before any rate hikes and can instead use this time to be judicious and shop around for rates and lenders. Consider getting quotes from at least three different lenders to improve your chances of securing the most affordable rate and terms.
