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Homeowners in need of extra financing have had few cost-effective options over the past few years. One of the cheapest ways to gain access to a large sum of money has involved accessing existing home equity via home equity loans and home equity lines of credit (HELOCs). While alternative credit products came with rates in the double digits (and still do), both of these home equity options come with single-digit interest rates for qualified borrowers. And those rates could fall further now that the Federal Reserve has embarked on what appears to be a new rate-cutting campaign.
With the first interest rate cut in more than four years issued in September and others likely for when the Fed meets again in November and December, home equity borrowers may be tempted to wait for this formality before withdrawing funds from their home. But, in many instances, that would be a mistake. Below, we’ll break down why you shouldn’t wait for the November rate cut to tap into your home equity.
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Why home equity borrowers shouldn’t wait for the November rate cut
While a rate reduction in November could be beneficial for those who borrow from their home equity, it’s not necessarily worth waiting for that to happen. Here’s why:
HELOCs will adjust automatically
HELOC interest rates are variable and subject to change each month. It doesn’t make sense, then, to wait for a November rate cut if you’re planning to use a HELOC. As rates fall (or rise), HELOC rates will adjust independently. In other words, you’ll earn the benefit of a lower HELOC rate in November no matter when you open the line of credit. Delaying, then, won’t offer any additional benefits than what you would obtain simply by acting now.
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Rates won’t fall precisely by the same amount
Rates on both home equity loans and HELOCs are influenced by what the Fed does but they’re not directly dictated by it. So they’re unlikely to fall by precisely the same amount that the federal funds rate does. Some lenders may even preemptively price in presumed rate reductions, meaning that what you’re offered in the days after a rate cut is unlikely to be materially different from what you could’ve secured in the days before the Fed took action. Waiting, then, won’t make much difference.
You’re running out of time to use it as a tax deduction
Interest paid on home equity loans and HELOCs is tax-deductible if used for eligible home repairs and renovations. But with barely two months left in 2024, you’re running out of time to use these products as a qualifying tax deduction. If you wait for rates to fall in November, then, your tax interest deduction will be minimal when you file your return in the spring. Instead, much of the use of the loan — and its tax benefits — will be pushed off into 2026.
Your expenses can’t be delayed
If you need a large sum of money, as many who borrow from their home equity do, it’s likely that the expenses you need it for can’t be delayed. If you’re planning on using your home equity to consolidate debt or to pay off what you owe to credit card companies, for example, then it doesn’t make sense to delay. With the average credit card interest rate near 23% now while the average home equity loan and HELOC interest rates are under 9%, you’ll lose money by continuing to use the former instead of the latter. So don’t delay in anticipation of a slight rate cut.
Use your home equity to pay off your high-rate credit card debt now.
The bottom line
Waiting for a November rate cut may be advantageous for some borrowers but, arguably, not for home equity users. Since HELOCs will see their rates adjust automatically, and because rates are unlikely to fall precisely as the federal funds rate does, it may not be beneficial to wait for that to happen. And if you’re planning to use it for home repairs and renovations, the window of opportunity to deduct the interest from your 2024 taxes is closing. Plus, some expenses simply can’t be delayed, particularly for what is likely to be a marginal benefit, at least with a small rate cut in November. For all of these reasons, it makes sense to take action now. Just do so in a measured fashion as your home is collateral in these borrowing circumstances so you’ll want to avoid risking your ownership if you can’t ultimately repay all that you’ve withdrawn.
