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The long-awaited version of the federal funds rate was released in September. After years of rate hikes and higher borrowing costs, the Federal Reserve finally lowered its benchmark interest rate to a range between 4.75% and 5%. This was largely due to a cooling in the inflation which, if it continues, could also lead to additional interest rate cuts in November and December. While this is a benefit to borrowers, expectations for substantial relief must be measured, especially for those looking to borrow from their credits equity.
Many have chosen in recent years equity loans And home equity lines of credit (HELOCs) as their cost-effective borrowing preference. But waiting for interest rates to fall further before taking action could prove to be a costly mistake. Below we will outline three reasons why homeowners should not wait for mortgage rates to drop further.
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Why you shouldn’t wait until mortgage rates fall further
Are you ready to borrow against your home equity, but not sure whether to take action or wait? Here are three important reasons why you shouldn’t wait for home loan rates to fall further:
The interest rate cuts will take place gradually
The average interest rate on home loans as of October 2 is 8.39%. That’s lower than the 8.75% it was in the spring, but not in a major way. After all, that reduction of 0.36% is after A half-percent interest rate cut has already been implemented, underscoring the gradual (and some say slow) pace at which home loan rates are falling. Although interest rates are expected to fall in the coming weeks and months, they are not expected to fall dramatically. And if new economic data released in October or November proves problematic, interest rate cuts could be suspended in response. So don’t wait for that to happen.
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Your financial needs cannot wait
If you’re seriously considering tapping your home equity, which is likely one of your largest financial investments, chances are you need money now. If this is the case, your financial needs may not be delayed long enough — and nor should they be — to guarantee an interest rate that’s just a few basis points lower than what you can get right now. So if you are looking for a home equity loan consolidate credit card debtwhich is currently hovering near record rates, for example, it would be wise to open a mortgage loan now to do so.
You will miss this year’s tax deduction
The interest paid on a home equity loan is tax deductible if the borrower uses the money for qualifying home repairs or renovations. So if you plan to use your mortgage loan for these reasons this fall, it would be wise to take action now. If you wait until 2025, you will then have to wait until 2026 to get this tax deduction. But if you open a mortgage loan — and use part of it — in the final months of 2024, you’ll be eligible to write off that interest on your tax return in the spring.
The bottom line
The decision to wait until interest rates fall is always a precarious one. This is especially true if you use your home equity. Because interest rate declines are expected to be gradual and because your current financial needs are likely urgent, it makes sense to be proactive now. And if you wait, you’ll also be delaying a significant tax deduction. So weigh the costs of waiting against the benefits of acting now. For many, it can be useful to get started with a mortgage loan today.
Do you have more questions? Learn more about your best mortgage options here.
