Home equity loan dos and don’ts to know this November

If you were looking for a cost-effective way to borrow a large sum of money in recent years, home equity provided the best option. Not only were interest rates lower on home equity loans and home equity lines (HELOCs) than they were on most popular alternatives, but both provided a way to access a six-figure sum that others often couldn’t provide. And now, with one interest rate cut already issued by the Federal Reserve in September and additional ones likely for when it meets again in November and December, both products are poised to be even cheaper for borrowers in the final weeks of 2024.

That noted, home equity borrowing comes with some inherent risks, and borrowers will need to be careful to only withdraw what they’re comfortable repaying or they could risk their homeownership in the process. Understanding this, as well as the dynamics of borrowing home equity in today’s changing rate climate, borrowers should know some important home equity loan dos and don’ts going into November. Below, we’ll break down four of them.

See what home equity loan rate you could secure here now.

Home equity loan dos and don’ts to know this November

Home equity loan borrowing has some timely benefits and disadvantages that can affect your approach. This November, borrowers should specifically consider the following steps:

Do: Choose a HELOC over a home equity loan

Sure, a HELOC has a slightly higher rate than a home equity loan does right now (8.69% versus the latter’s 8.36%). But if you lock in that home equity loan rate now and rates fall as expected, you’ll need to refinance (and pay to refinance) to secure that lower rate. HELOCs, meantime, will simply adjust on their own, lowering your monthly payments as long as interest rates continue to decline.

Explore your best HELOC options online now.

Don’t: Wait for rates to fall

For starters, if you wait for rates to fall, you’ll delay paying the expenses you need the financing for. And if it’s to consolidate high-rate debt, for example, that will come at a cost. But, just as importantly, waiting for rates to fall is a risky move. There’s no guarantee that they will fall or, if they do, by how much. Plus, home equity loan rates don’t move directly in tandem with the federal funds rate anyway. So even if rates were to be cut by 25 basis points, it’s unlikely that home equity loan rates will drop by the same amount.

Do: Shop for lenders

With rates on the decline, it’s more important than usual to shop around for lenders. While most will offer a rate in the approximate same range, every basis point helps. Some lenders, for example, may be more proactive in terms of pricing in presumed rate cuts while others may closely follow the Fed. You won’t know which approach each takes, however, until you shop around. 

Don’t: Miss out on certain dates

As noted, some lenders will preemptively price in rate cuts before they’re formally issued. And this often takes place when data that could affect the Fed’s actions is released. So don’t miss out on certain dates in November, like November 7, when unemployment data for October is released. That’s also the date the Fed is set to conclude its next meeting. But keep an eye out for October inflation data, too, which could set the stage for the Fed’s actions in December (scheduled to be released on November 13).

The bottom line

If you’re looking for a way to access large sums of money in a cost-effective way, home equity borrowing can be the smart way to do so this November. Just be sure to take a strategic approach when you do. This means choosing a HELOC over a home equity loan, not waiting for rates to fall and shopping around for lenders to find one offering the best rates and terms. And be sure to monitor certain upcoming dates for opportunities to capitalize on the cooling rate climate.

Have more questions? Learn more about your current home equity loan options here.