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The Federal Reserve has already signaled that rising rates are on the horizon for 2022, but Bankrate has released a new forecast predicting that rates will be adjusted at least twice this year.
Two rate increases means that rates will rise by more than half a percentage point, meaning the rate for a home equity line of credit (HELOC) will average 5.05% by the end of the year.
“For existing borrowers, the rate is going to mimic whatever the Fed does,” said Greg McBride, Bankrate Chief Financial Analyst. “If the Fed raises rates twice, expect your rate to be half a percentage point higher.”
“If you are in the market for a home equity loan in 2022, you can expect the average rate trending higher in response to the Fed, rising more modestly, moving a quarter of a percentage point, ending the year at 6.25 percent,” McBride continued.
What happened to home equity rates in 2021?
The Federal Reserve’s federal funds rate directly influences market rates for home equity products—in 2021, those remains remained fairly low for home equity loans ranging from 5.29% at the beginning of the year to 5.96% by the end of the year. The average HELOC interest rate ranged between 4.7% to 4.28% by the end of the year.
What to expect in 2022
Despite the pending rise in interest rates, more people are predicted to take advantage of their home equity this year, leveraging rising real estate prices into the equation to mainly complete home improvement projects.
“Home equity loans remain an attractive option for debt consolidation. Additionally, borrowers who have not refinanced their mortgage are still better off refinancing before considering a HELOC.”
Next steps
If you are thinking of a home equity loan or line of credit this year, consider this:
- Existing HELOC borrowers will likely see rates raised by at least half a percentage point
- Existing home equity loan borrowers do not have to worry about rising rates
- New borrowers for either product will see slightly higher rates and fewer promotional deals for new borrowers
- Homeowners who have finished refinancing their homes are in a great position to utilize home equity with a HELOC
- Borrowers looking to consolidate debt should consider a home equity loan
