3 smart home equity moves to make before the Fed's April Meeting
When making smart financial decisions, timing plays a key role. Those homeowners who refinanced their mortgage in 2020 and 2021 — or those buyers who purchased a home then — can attest to this as mortgage rates have more than doubled since. For current owners looking for an extra source of financing, meanwhile, now may be a good time to tap into their home equity.
With inflation still stubborn and interest rates stuck at their highest points in decades, home equity borrowing is one of the more cost-effective ways to access extra money. And with the next Federal Reserve meeting scheduled for April 30 and an announcement on the future of rate hikes to be released the following day, many may want to act now. Below, we'll break down three smart home equity moves homeowners should consider making before the Fed's April meeting.
Start by reviewing your home equity loan options online today.
3 smart home equity moves to make before the Fed's April meeting
Here are three smart home equity moves to consider before the Fed's next rate announcement.
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Optimism was high at the start of 2024 that this inflationary cycle was permanently cooling and that rate cuts would soon be coming. But a series of disappointing inflation reports since January 1 have cooled that optimism, and now rate hikes are back as a possibility. Understanding this, and the effect it will have on home equity borrowing, owners who know they want to access their equity should get started before any Fed announcement adversely affects today's lower rates.
There's no downside to locking in a home equity loan rate today. If rates go up next week and in May, owners will already have a lower option. And if they stay the same or drop later in the year, owners can always refinance their loan to the lower rate at that point.
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Choose a home equity loan over a HELOC
A home equity loan has a fixed interest rate that will remain the same for the duration of the loan (unless refinanced). A home equity line of credit (HELOC), meanwhile, has a variable rate that will adjust based on the Fed's moves and overall market conditions. That can be favorable if rates are trending downward but, right now, that doesn't appear to be the case.
And, taking out a HELOC with the strong possibility of rate increases could quickly become problematic and difficult to pay back for many homeowners. So, for many, it's smarter to take out a home equity loan instead of a HELOC.
Only borrow what you need
It's always smart to only borrow what you need but in today's climate, it's particularly important to take this cautious approach. Even if you pursue a home equity loan, with its fixed rate, inflation and interest rates are still making the cost of everyday purchases and daily borrowing difficult for many.
Against this backdrop, you'll want to avoid borrowing more than you actually need, especially when using a home equity loan, which utilizes your home as collateral. So, only borrow a precise amount. With the potential for interest rate cuts low now, you'll want to make sure that you're keeping your borrowing as tight as possible.
The bottom line
With a new Federal Reserve meeting just days away and the potential for changes to the rate climate high, homeowners considering using their equity should take a smart and nuanced approach. They'll want to get started now, before rates potentially become prohibitive, and most will want to lock in a home equity loan rate versus the volatility that HELOC rates come with. Finally, by taking the traditional approach of only borrowing what they need, homeowners will improve their chances of paying back their loans in a timely manner, which is especially important in today's still fluctuating rate climate.
Considering tapping into your home equity now? Learn more here.
