Many predict the Federal Reserve will raise interest rates in the year ahead, and this means HELOC borrowers can expect their loan payments to creep upward.
Bankrate.com’s Chief Financial Analyst Greg McBride said it is likely that the Fed will raise rates twice in 2019, and this may mean that many HELOC borrowers will see their rates increase by 50 basis points.
McBride explained that each rate hike increases the minimum payment on a $30,000 line of credit by about $6, meaning that two hikes would add $12.50 to a borrower’s monthly tab. He predicts the average HELOC rate to top out at 6.85% by the end of 2019 and then flatten out.
Will an extra $150 a year convince some homeowners not to pursue the loan? Not necessarily, McBride said.
“Mortgage rates have come up dramatically over the last year and could move back up above that 5% mark,” he said. “People who are looking to tap into their equity are not going to refinance their first mortgages currently under 4% at a rate of 5% or so, just so they can access some additional cash. They’ll look to the home equity line as the way to tap into additional equity.”
McBride said the HELOC will remain the dominate choice for those looking to access their equity, despite the fact that it will be slightly more expensive and that recent tax laws have stripped its advantage.
But despite this, McBride said 2019 will not be a strong year for HELOCs, even though several factors have some predicting a boom in home equity lending in the year ahead.
“Yes, people are staying in their homes longer, home prices have gone up, people have more equity than they’ve had before, and it’s still a place that people look when they need access to significant chunk of money,” he said. “But because of the fact that there is a wider aversion to borrowing from home equity than there was 12 years ago, the volumes are just not going to be what we had seen in previous economic cycles.”