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CBS News
05-05-2025
- Business
- CBS News
3 HELOC rate scenarios experts say to watch right now
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. A few different HELOC rate scenarios could occur this month, experts say, and that could have a big impact on the cost of borrowing. Getty Images/iStockphoto If you've been weighing your borrowing options, chances are that you're well aware of how expensive borrowing is overall in today's high-rate landscape. But while rates on credit cards and loans are high, the rates on home equity borrowing products, like home equity loans and home equity lines of credit (HELOCs) have remained significantly lower on average and have even been dropping recently. For example, in late March, HELOC rates hit a two-year low of 8.03% — a rate that was significantly lower than most other borrowing rates. After all, today's average credit card rate is hovering near 22% currently and personal loan rates are averaging over 12%. So even at over 8%, HELOCs were one of the most affordable borrowing options to consider. And, HELOC rates kept dropping from there. By the end of April, the average HELOC rate stood at 7.95% — where it remains today. But the Federal Reserve has kept the federal funds rate stable throughout 2025 — and that benchmark interest rate has a ripple effect on HELOCs. When there are rate hikes or decreases from the Fed, borrowing rates tend to follow. And, the most recent Consumer Price Index data showed that inflation is cooling and the jobs report came in better than expected. These broader economic factors can also influence HELOC rates. So, what HELOC rate scenarios could occur right now? Compare your home equity borrowing options online now. 3 HELOC rate scenarios experts say to watch right now The Federal Reserve is set to convene again on May 6 and 7. What the Fed does next with the federal funds rate impacts where HELOC rates are headed. Here's what could happen, experts say. HELOC rates could fall further HELOC interest rates have dropped by a couple of percentage points over the past year, with average rates just below 8%. The potential for HELOC rates to fall further is there, experts say, but if that's the case, it's likely going to result in a nominal difference. "Almost every lending institution ties their HELOC rates to prime. So typically, prime moves and fluctuates based on decisions that are made by the Federal Reserve and in general, those have been recently trending downward," says Jason Lerner, branch manager at First Home Mortgage. The forthcoming Federal Reserve meeting will set the stage for what's to come. "We've got some important meetings coming up, but I think in general the feeling is that there's going to be a downward trend, maybe gradual based on market factors, maybe accelerated based on political factors," says Lerner. "I think there's going to be a small drop in May." Compare the top HELOC rates available to you now. HELOC rates could rise Home equity lines of credit generally have variable rates, and, as such, they change over time based on the overall rate environment. HELOC rates have seen a steady decline over the past year, and while it's unlikely HELOC rates will rise over the short term, a rate increase could still happen depending on a number of factors. "There are two components to an interest rate, especially for HELOCs. There's the index and the margin. For the rates to rise due to the index, that would mean that the indexes have to be increased, which would mean the Fed raised interest rates. That would be a tough sell," says Mason Whitehead, a senior loan officer and branch manager with Churchill Mortgage. "Now what lenders can do… is they price based upon risk … so the banks and lenders and investors can raise the margin on top of the index if they see higher risk thresholds." HELOC rates could stay the same The CME FedWatch tool indicates that the majority of experts believe that no changes will be made to the federal funds rate in May. Sarah DeFlorio, the vice president of mortgage banking at William Raveis Mortgage, agrees. "It is my belief that specifically for the month of May that they will likely stay the same. I think there is just too much uncertainty," DeFlorio says. While the general belief is that the Fed rate is unlikely to change rates in May, DeFlorio acknowledges that current expectations are that the Fed will conduct two more rate cuts before the end of the year. And, while the Federal Reserve's actions may keep rates in a holding pattern overall, the process in which HELOC lenders set rates is nuanced. "There are many, many lenders and typically they all have their own guidelines, especially when it comes to HELOCs," says DeFlorio. "What we do see is a number of lenders try to incentivize people to choose their bank specifically by offering an introductory fixed-rate period." The bottom line While the Federal Reserve's actions do impact HELOC interest rates, it's not the only thing HELOC lenders consider. "In general, with HELOCs, it's all about risk-based pricing. So the better credit scores, the better debt-to-income ratio, the better combined loan-to-value, the better pricing you get," says Whitehead. If you're interested in opening a HELOC, you can shop around and review rates from multiple HELOC lenders. As part of your research, "ask the question if there's a floor. Because if rates do drop, some home equity lines of credit are going to have a floor, meaning the rate won't go below a certain number," says Whitehead. And, there's another borrowing option to consider as well: a home equity loan. Home equity loan rates stay the same throughout repayment, as they're fixed, which can be a big benefit to certain types of borrowers. Similar to HELOCs, though, you should research options from various home equity loan lenders to find competitive rates.
CBS News
11-04-2025
- Business
- CBS News
Early HELOC repayments: 3 questions homeowners should ask
The Federal Reserve held steady with no changes to the federal funds rate after its March meeting. Inflation and economic uncertainty led the Fed to maintain what's often used as a benchmark interest rate that can affect the cost of borrowing. As these challenges continue, homeowners can tap their home equity as a cost-effective alternative. Home equity lines of credit (HELOCs) , in particular, offer flexible financing at lower rates. While average credit card interest rates currently top 21% and average personal loan rates are around 12%, according to Federal Reserve data , HELOC interest rates have hit a two-year low and are now just below 8%. And, with potential rate cuts down the line, HELOC rates could drop further. And, home equity lines of credit offer flexibility, allowing you to draw from a credit limit, repay and access available funds again, similar to a credit card. That can be a big perk for borrowers. There are a few unique things to know about the repayment process, though. HELOCs have draw periods where you can access the funds and repayment periods to pay off what you borrow. While you're in a HELOC draw period , you may only be on the hook for interest payments on the amount you use, but during the repayment period, your monthly payments will jump significantly to pay off both the principal and interest. So, if you're interested in paying it a HELOC before the draw period ends, there are some important questions you should ask first. Learn more about your home equity borrowing options now . Before borrowing from your home equity or paying off your HELOC early, consider these questions. Whether you're shopping around for a HELOC or already have one, it's key to understand the terms of your loan agreement. One of the main things to find out is if you can make HELOC repayments immediately and pay off your balance early . You may be able to pay off your HELOC early before the draw period ends, but check with your lender. "Check if there are any prepayment penalties or hidden costs. So most HELOCs are fairly flexible, but I think it's worth checking and not being surprised," says Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors (NAR). Not all HELOC lenders charge prepayment penalties , but some do. As an example of what that could look like, U.S. Bank charges borrowers 1% of the credit line up to a maximum of $500 if you repay and close your balance within 30 months. If you received an introductory offer or special pricing, read the fine print. "A lot of home equity lines of credit or companies market their home equity line of credit with no closing costs at some kind of initial rate that's lower than the market," says Jason Lerner, branch manager at First Home Mortgage. "And a lot of times, if there's some of those specials, they often require that you keep the loan open for a certain amount of months." Lerner notes that all HELOC lenders are different and have their own policies. Find out how affordable a HELOC could be now . A HELOC typically offers borrowers a generous 10-year draw period. The repayment period could last from 10 to 20 years , depending on the terms and your lender. In other words, the HELOC draw and repayment periods together can be lengthy. That's quite some time to carry on monthly payments. Additionally, some HELOCs may require a balloon payment, which means you pay what you owe in full. Even if that's not the case, your monthly payments will notably increase when transitioning from the draw period to the repayment period. Making early HELOC repayments can be more financially sustainable. "Often, it's actually better served for long-term financial goals to start paying it back immediately," says Lerner. Making early HELOC repayments can: After you pay off your HELOC, you effectively increase your cash flow by getting rid of those monthly payments. Paying off a HELOC early can be a financially savvy strategy. But it might not be the right move for everyone. Given these uncertain times, if your job or industry is under the threat of looming layoffs, you likely don't want to repay your balance early. Having more cash on hand, in this case, can be a much-needed safety net. Lerner notes that consumers who are "using those funds for something positive and getting a better return on investment than they would by doing something else" may not want to pay off a HELOC early. If you value the flexibility of a HELOC and want to maintain that access by keeping the line open, paying it off early doesn't make sense. HELOC users can benefit from the flexibility the draw period provides. However, the HELOC repayment period could be an unpleasant surprise if you're not prepared. That's why it can be a smart idea to make HELOC repayments early. If you're interested in this financing tool, check with multiple home equity line of credit lenders to review rates and prepayment policies. Also, remember that HELOC interest rates are variable and fluctuate. If you prefer a fixed rate, you can look into home equity loans. Before submitting a HELOC application, look at eligibility requirements and pay close attention to potential fees. "I think home equity lines of credit are great for short-term needs. I think for a very long term, it just requires discipline to start making extra payments and being aware that the prescribed payment only is covering the interest," says Lerner.
CBS News
07-04-2025
- Business
- CBS News
Why you should shop for home equity loans and HELOCs this April, according to experts
Americans continue to fight an uphill battle with economic forces outside their control. Inflation is beyond its target , increasing the cost of goods and total expenses. Interest rates remain steady to help tame said inflation. Now, more price hikes might be in the future due to new tariffs. These and the other economic factors that are looming can have a direct impact on your wallet. Because of this, consumers need to take advantage of the financial tools and resources available to them. For homeowners, that can mean utilizing home equity borrowing options. Home equity loans and home equity lines of credit (HELOCs) provide access to capital with more favorable terms than other alternatives. And, right now could be a good time to shop around and review your options with multiple home equity lenders. Here's why. Find out how low your home equity borrowing rate could be now . We spoke to home lending experts about why you should shop for home equity loans and HELOCs this April. Here's what they have to say: What the Federal Reserve does with the federal funds rates tends to affect the cost of borrowing. While everyone is holding their breath and hoping for rate cuts in the future, the Federal Reserve left rates unchanged after the March meeting. There isn't a Federal Reserve meeting scheduled for April, which means there's no decision pending by the Fed that could impact rates this month. So, while that means there won't be any cuts, there won't be any increases, either. This can make it a good time to look into home equity loans and HELOCs. Compare your top home equity borrowing options online today . Whenever you borrow, the interest rate is a major factor to consider. Now, taking out a home equity line of credit just got more affordable. HELOC interest rates dipped below 8% for the first time since 2023. Before this major milestone , HELOC rates were on a small but steady downward trajectory . HELOC interest rates are typically variable, so if the trend continues, you can still benefit. "The direction that the market's heading…the expectation is that those numbers are going to decrease and there's going to be some opportunities to potentially take advantage of lower home equity lines of credit [rates]," says Jason Lerner, branch manager at First Home Mortgage. More than half (54%) of mortgages have rates of 4% or lower, according to Q4 2024 data from . Homeowners who secured such low rates are holding on to a good thing. "They're locked in and they're sitting on those record low mortgage rates of the two to four range. We don't expect these rates to come again," says Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. That can make options like a cash-out refinance less appealing, as you replace your existing mortgage and therefore lose your low mortgage rate. Home equity borrowing options like HELOCs or home equity loans can keep your low mortgage rates intact. "It's a way to leverage and take some of the equity in your home to use for home improvement purposes or debt consolidation without jeopardizing your very low rate," says Mark Worthington, a loan officer and branch manager at Churchill Mortgage. Springtime is often considered the prime home-buying season . But it's also a great time for home renovations. "I will say that April, in general…kicks off the renovation season as well. So, weather is finally, in most parts of the country, warmer and many homeowners start planning big projects," says Evangelou. The warmer weather and extra hours of daylight provide ideal conditions for renovating. Whether you want to build an outdoor deck or renovate your kitchen or bathroom, now is a good time to do that. Using home equity borrowing options can help you finance those renovation projects. When you take out a home equity loan or a home equity line of credit, you retain your current mortgage rate, and the interest rates on these financing tools are often lower than other borrowing options. Credit card interest rates exceed 22% on average right now, making them a costly choice. If you're in credit card debt, tapping your home equity can be a smart move to consolidate your debt at a lower rate. HELOCs, in particular, offer borrowers a ton of flexibility in how much they can borrow and when. "With a home equity line of credit, you can re-leverage the money. With a home equity loan, you can't. Once it's leveraged and dispersed to you, even if you pay it off to have that money back again, you need to get a new loan. That makes the flexibility of a home equity line of credit much greater," says Worthington. If you're looking to consolidate debt or make some home upgrades, home equity borrowing can help. Review your home equity amount and look into both home equity loan requirements and HELOC requirements to see if you qualify. However, it's important to be smart about borrowing. "Think of your equity as a financial tool that can help you, but it's not like a piggy bank," says Evangelou. Make sure to calculate your repayment costs with each product and shop around with multiple home equity or HELOC lenders. Lerner suggests a home equity loan for people who need an extended repayment period and who benefit from a fixed rate and repayment schedule. That's a major difference to consider. Home equity loan interest rates are generally fixed, while HELOC interest rates are typically variable. For consumers who want assistance with cash flow in today's economy, Lerner says, "Home equity lines of credit can be a great solution as long as they're managed appropriately with the end goal of ultimately paying them off."
CBS News
19-03-2025
- Business
- CBS News
4 borrowers who should open a HELOC (and 3 who shouldn't)
In today's high-rate and high home equity environment, home equity borrowing has become a popular option. Whether for debt consolidation, home renovations and repairs, or other short-term expenses, borrowing your home equity can be more beneficial than other alternatives. Home equity borrowing can come in different forms, ranging from lump sum home equity loans to home equity lines of credit (HELOCs) to cash-out refinancing . But HELOCs, in particular, are in demand as they offer more flexibility with borrowing and repayment. As a borrowing product, a HELOC can offer a lot of benefits. However, it's not a good fit for everyone. We spoke with home lending experts about who should and shouldn't open a HELOC right now. Below, we'll break down what to know. Start by seeing how low of a HELOC interest rate you'd be eligible for here . Homeowners have a unique opportunity to secure financing through a home equity line of credit. Instead of turning to high-interest loan products, they can tap the equity in their home. "So many homeowners have equity because of the sharp appreciation of values we've experienced over the last five years," says Jason Lerner, branch manager at First Home Mortgage. Here are some situations when it can make sense to look into HELOC borrowing : Americans collectively owed $1.21 trillion in credit card debt as of December 2024, according to data from the Federal Reserve Bank of New York . Credit card interest rates are also sky-high, currently north of 20% . If you're knee-deep in credit card debt and struggling to pay it back because of the accumulated interest, a HELOC can be a powerful tool for debt consolidation. Average home equity line of credit interest rates are dropping and are currently 8.04% on a $30,000 HELOC, according to Bankrate . Being able to pay off high-interest debt and potentially cut your interest rate in half with a HELOC can be a smart move. Get started with a HELOC now . Lerner notes that a HELOC could make sense for homeowners or real estate professionals looking to renovate their home or invest in other properties. "If someone knows that they're going to take on this extra debt but they're going to get a significant return on their investment…where they know they're going to put $10,000 or $20,000 into the home and get an increase in value of $40,000 or 50,000," says Lerner, a HELOC could be a smart financial move. "Another really good candidate for a HELOC is somebody that owns their home and they've been in it for a while or maybe they purchased a home that just needs some upgrading, some sprucing up or some maintenance and repair," says Mark Worthington, a loan officer and branch manager at Churchill Mortgage. Home equity borrowing is convenient for homeowners who might need some extra cash. But it's still money you have to pay back. As with any type of loan, being in a good financial position can make you a solid candidate for a HELOC. "A HELOC is best for responsible borrowers with strong credit, a solid debt-to-income ratio, and sufficient home equity. It's a smart option for homeowners who need access to capital but want to avoid the high interest rates of credit cards or the hassle of refinancing," says Dr. Sean Wilkoff, an assistant professor of finance at the University of Nevada, Reno. A home equity line of credit has a draw period and a repayment period . In some cases, the draw period could be 10 years and the repayment period could be up to 20 years. While that might sound beneficial, you could be in debt for a long time. You also can't see into the future and know where you'll be financially in a decade. Because of that, Lerner says that borrowers who are dealing with a short-term expense and planning to repay the HELOC quickly could be good candidates for this type of financing. A HELOC is a flexible financing tool, making it an attractive option for borrowing. However, not everyone is a good fit for a HELOC. Here are some examples of borrowers who should likely reconsider a HELOC: Inflation is affecting everyone's budget. But borrowers who don't have any breathing room in their budget or are already overextended with payment obligations shouldn't open a HELOC. "If you're unable to comfortably repay the borrowed amount, it can quickly become a financial burden. Borrowers who wouldn't feel secure putting the expense on a credit card should think twice before using their home as collateral. Additionally, if covering the closing costs is a stretch or you don't fully understand how variable interest rates work, a HELOC may not be the right choice," says Wilkoff. Home equity line of credit interest rates are generally variable. That means your rate can go up or down depending on economic conditions and what's happening with the prime rate. If you have concerns about a variable rate or your payments changing, a HELOC might not be the best tool. However, some lenders do offer a fixed-rate option . On the other hand, most home equity loan interest rates are fixed , which can help with budgeting as payments stay the same. Debt consolidation is one of the best ways to use a HELOC. But Worthington notes it's only a good idea if you've changed your financial habits and circumstances that led to the debt in the first place. "I caution when we use a HELOC for debt consolidation. It is a lower interest rate than you can get on virtually every other kind of debt, particularly consumer debt when it's related to credit cards. However, there's often a cycle," says Worthington. Until you've addressed the root cause, borrowing more could potentially keep you in a debt cycle that's tough to climb out of. A HELOC can be a useful tool in a variety of situations, but it's not for everyone. If you're in a solid financial position and clear on how a HELOC will help you, Worthington suggests speaking to more than one financial institution to compare options. To review rates and terms, you can check HELOC options from home lenders and financial institutions. While it's important to have a clear vision of how you'll use the funds, it's even more important to know how you plan to repay what you borrow. "I definitely would say to have a plan for repayment for anyone who opens up a HELOC," says Lerner. Learn more about borrowing with a HELOC here .
