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Another Fed Rate Hike Means Higher Costs for Home Equity Loans and HELOCs. How Borrowers Can Adjust – NextAdvisor

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We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money. Key Takeaways

  • Home equity loan and line of credit (HELOC) rates rose a bit this week.
  • The Federal Reserve hiked its key short-term interest rate by 75 basis points, which will drive up the cost of borrowing money.
  • The Fed hike will most directly affect HELOCs, which often have variable rates tied to what the central bank does.
  • If you have a HELOC with a variable rate, be cautious when borrowing more money as rates will likely continue to increase for a bit longer, experts say.

Expect to pay more if you’re borrowing money against your house. Thank the Federal Reserve.

That’s not just the case if you’re planning to take out a new home equity loan or line of credit (HELOC). If you already have a HELOC or loan with a variable interest rate, that’s going to go up.

The Fed on Wednesday announced it will raise its benchmark short-term interest rate – the federal funds rate – by 75 basis points as part of its ongoing bid to rein in persistently high inflation. Prices were 8.3% higher in August than they were a year earlier, according to the Bureau of Labor Statistics, which was higher than expected. 

This week’s increase in the federal funds rate is designed to discourage spending and encourage saving, aiming to bring prices down.

“Inflation is a major concern for people,” says Brian Walsh, senior manager of financial planning at SoFi, a national personal finance and lending company. “It impacts everyone and it’s especially harmful to people on the lower end of the income spectrum. The Fed has to get inflation in control and they have relatively limited tools to do that. Whether it’s perfect or not, they need to use their tools at their disposal. One of the main ones is raising rates.”

A higher federal funds rate will mean higher interest rates for all types of loans, and it will have a particularly direct impact on HELOCs and other products with variable rates that move in concert with the central bank’s changes. 

“Any way you cut it, it’s not going to be fun to have a higher payment every month on the same amount of money,” says Isabel Barrow, director of financial planning at Edelman Financial …….

Source: https://time.com/nextadvisor/loans/home-equity/average-heloc-home-equity-loan-rates-september-21-2022/

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