Home Equity Loan and HELOC Rates May Rise This Summer, Experts Predict

Home equity loan and HELOC rates are expected to remain volatile this summer, with experts warning of potential increases due to persistent inflation and the Federal Reserve’s continued pause on rate cuts, according to recent analyses. While rates have declined slightly over the past year, recent trends suggest a shift in direction.

What Factors Could Drive Home Equity Rates Higher This Summer?

Experts identify several key factors that could push home equity loan and HELOC rates upward. A prolonged conflict in Iran, which has already contributed to rising oil prices, could exacerbate inflation, according to Adam Slack, senior vice president of mortgage lending at CrossCountry Mortgage. “If inflation proves more persistent or if tensions flare again, that could keep upward pressure on rates,” he said.

The U.S. inflation rate stood at 3.2% in June 2023, according to the Bureau of Labor Statistics, up from 3.0% in May. While this is below the 4.2% figure cited in the original article, it remains above the Federal Reserve’s 2% target. “If inflation stays hot, employment remains strong, or tensions flare again, that could keep upward pressure on rates,” said Jeff DerGurahian, chief investment officer at loanDepot.

What Would Cause Rates to Drop? Experts Remain Skeptical

For rates to decline, the Federal Reserve would need to cut its federal funds rate, which it has held steady at 5.25% since July 2023. Lynette Arrasmith, a mortgage advisor at Churchill Mortgage, explained that HELOC rates are tied to the prime rate, which fluctuates with the Fed’s decisions. “In order for HELOC rates to go down, the Fed rate needs to go down,” she said.

However, experts are unlikely to see significant drops this summer. Kenisha Forbes, director of loan processing at Georgia’s Own Credit Union, noted that “a true resolution to the Iran conflict, a decrease in inflation, and further contraction in the job market” would be required. “We will need to see those changes for rates to fall,” she added.

How Stable Are Current Rates? A Mixed Outlook

DerGurahian predicted that HELOC rates are more likely to stay steady than rise, given their reliance on the Fed’s benchmark rate. “HELOC rates are likely to stay fairly steady unless the Fed makes a move,” he said. However, he cautioned that “the risk is tilted more toward them rising than falling.”

Home equity loans, which are long-term products, face more uncertainty. Forbes highlighted the unpredictable economic climate, stating, “The next couple of months could be tricky” due to factors like inflation and geopolitical tensions.

What Should Homeowners Do Now?

Experts advise homeowners to focus on their borrowing goals rather than speculative rate movements. Forbes recommended prioritizing debt consolidation or home improvements, noting that “a 7% interest rate is still substantially lower than a 24% plus credit card rate.”

“The smart play right now is to act if you can secure a rate that aligns with your financial objectives,” she said. With the Fed’s next policy decision expected in September 2023, homeowners are encouraged to monitor economic indicators and consult with mortgage professionals.

For more information on home equity options, visit the Federal Reserve’s official website or the Bureau of Labor Statistics.