![]() Home equity loans are commonly used to make home improvements, such as adding solar panels, that will in turn increase the value of your home. When leveraging your home’s equity, consider what you’re going to do with the money as well as how you plan to pay it back. If you miss multiple payments, you could lose your home. Home equity loans offer more competitive interest rates than personal loans and credit cards, but they come with a major risk. “So, if inflation isn’t under control they’re going to take stronger action and that’s what would result in higher rates,” he added. “Ultimately, I think will be driven by the pace of inflation, because that’s what the Fed is trying to control by raising rates,” Cook said. However, home equity loans have fixed interest rates, meaning those with existing home equity loans won’t see any changes to their monthly payments. Interest rates for home equity loans track the Fed’s federal funds rate, so homeowners looking to borrow with a home equity loan could see some rate increases in response to the most recent rate hike. The most recent Consumer Price Index shows inflation at 4.9% in April, down from 5.0% in March. Inflation has been slowly but steadily declining since its peak last June of 9.1%. “So may not change things unless there’s a surprise in inflation data.” “What’s already priced into the market is an expectation of a certain pace of increases,” said Rob Cook, vice president of marketing digital and analytics for Discover Home Loans. The good news is that the most recent Fed hike may not have a huge impact on interest rates for home equity loans. The central bank has hiked interest rates 10 times since last March in an effort to rein in inflation. Despite softer inflation data, home equity loan rates continue to hold steady above 8%.ĭuring its May meeting, the Federal Reserve announced a 25-basis-point (or 0.25%) increase to its benchmark federal funds rate. Homeowners can tap into their home’s equity with a home equity loan, but don’t expect interest rates to fall any time soon. ![]()
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