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Why Home Equity Loans and HELOCs Will Get More Expensive After Next Week’s Fed Rate Hike – NextAdvisor

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Key Takeaways

  • Home equity loan rates moved very little and home equity line of credit (HELOC) rates were unchanged from last week.
  • Rates are expected to go up after the Federal Reserve increases its benchmark short-term interest rate next week.
  • The impact of the Fed’s move on HELOC rates will be direct, but the effect on home equity loan rates is less clear, experts say.

It’s about to get more expensive to borrow against the equity in your home. 

And you can thank the Federal Reserve, which is expected to raise interest rates again next week in its ongoing effort to slow rising inflation.

Inflation has been stubbornly high for months. The latest Consumer Price Index showed prices up 8.3% year-over-year in August, which was higher than expected. That will push the Fed to keep its foot on the gas next week when it raises its benchmark short-term interest rate. The Fed raises rates to cool demand and try to bring prices down. When the Fed raises interest rates, banks also raise rates for products like home equity loans and lines of credit.

“The disappointing Consumer Price Index further underscores why the Fed will remain aggressive about raising interest rates and that higher interest rates will be around for longer,” says Greg McBride, CFA, chief financial analyst at Bankrate, which like NextAdvisor is owned by Red Ventures. 

Fed officials have indicated a commitment to raising interest rates as needed to bring prices down. So far this year, the central bank has increased its benchmark rate four times, including two consecutive hikes of 75 basis points. Observers expect another 75-point hike next week. “We are in this for as long as it takes to get inflation down,” Fed Vice Chair Lael Brainard said in a recent speech. 

Because home equity loan rates are based on the cost to banks and other lenders of borrowing money, they’ll likely see an increase in the wake of the Fed’s move. For home equity lines of credit, the effect will be more direct — their variable rates are often based on an index that mirrors what the Fed does.

“HELOC rates in particular will be at the mercy of how much more the Fed ends up needing to …….

Source: https://time.com/nextadvisor/loans/home-equity/average-heloc-home-equity-loan-rates-september-15-2022/

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