Why you should lock in a home equity loan rate this February

Borrowing from your accumulated home equity can be financially advantageous or risky, depending on your approach. To better avoid the inherent risks of using a home equity loan, in particular, it’s critical that you only borrow an amount that you can comfortably afford. Or you could risk losing your home to the lender. To accomplish this, borrowers must apply for the right loan amount with the right interest rate – at the right time. And they’ll need to do so with an above-average credit score to ensure they’re offered the best rates and terms.

Fortunately, this February can be a smart time to act. Home equity loan interest rates are down by around half a percentage point from where they were last February, making these cheaper alternatives than both personal loans and credit cards. But the timing surrounding an application – and the securing of a fixed rate – will need to be done expeditiously. Below, we’ll explain why homeowners should strongly consider locking in a home equity loan rate this February.

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Why you should lock in a home equity loan rate this February

Here are three compelling reasons why homeowners should consider locking in a home equity loan rate this month:

Rates are rising

A 10-year home equity loan rate on February 7, 2024, averaged 9.07%. That’s now 8.57%. But that 8.57% is a few basis points higher than it was in recent weeks, when it averaged 8.54%. That could be a trend, indicating additional rate hikes to come. Or it could be a minor issue. It’s too early to tell. 

But in this climate, it may not make sense to wait to find out. If you have a good credit score and a clean credit history, now could be the smart time to lock in a low rate. Should rates drop materially in the future, homeowners could always refinance then. But, in the interim, they’ll protect themselves from any possible future rate increases.

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Inflation is ticking up again

The inflation rate is now 2.9% after rising in October, November and December. If it rose again in January (the reading for that month will be released on February 12), lenders may respond by increasing their home equity loan rate offers. Lenders, after all, don’t need to wait for the Federal Reserve to take formal rate action to adjust their offers. But since the Fed’s monetary policy is a key driver for home equity loan rates, and because that policy is impacted by the fight against inflation, rate changes could come later this month. Locking in a home equity loan rate before that happens, then, could be the smart approach. 

There’s no Federal Reserve meeting this month

With the above scenario noted, borrowers should also remember that there is no Federal Reserve meeting scheduled this month. That means there won’t be any adjustments to the federal funds rate one way or another until the bank meets again on March 18 and March 19. Prospective home equity borrowers should then use this lull to review lenders, calculate their payments and, yes, lock in a home equity loan rate. Waiting for the Fed to shake up the interest rate climate next month may not be worthwhile while home equity loan rates are still relatively low this February. 

The bottom line

Waiting for home equity loan interest rates to fall is always a risk, particularly in today’s unpredictable interest rate atmosphere. With home equity loan rates already rising slightly, inflation consistently rising again and a break in the Federal Reserve meeting calendar, this February marks a moment for prospective borrowers to shop for – and lock in – a low home equity loan rate.