Is Now the Right Time to Refinance Your Home Equity Loan? Here’s What Experts Say

With the Federal Reserve recently cutting interest rates by 50 basis points, many homeowners with existing home equity loans or home equity lines of credit (HELOCs) are considering refinancing to secure a lower rate. While home equity loans generally offer better terms than credit cards or personal loans, the rates have been higher than in previous decades. However, with the Fed’s latest actions, there’s a renewed chance to save. So, is it time to refinance your home equity loan? Here’s what industry experts recommend.

Why You Should Refinance Your Home Equity Loan Now

Refinancing now could be a smart move if your current home equity loan or HELOC carries a rate set during a peak period. A lower rate could mean significant savings on monthly payments and overall interest costs. Domenick D’Andrea, co-founder of DanDarah Wealth Management, points out that refinancing to a lower rate could help many borrowers reduce their financial load. Even though the Fed may continue to reduce rates, waiting too long could mean missing out on current savings opportunities.

Refinancing also makes sense if you used the loan to increase your property’s value through renovations, says Jess Schulman, President of Bluebird Lending. Given the potential for higher property appraisals, these enhancements could help you secure a more favorable rate. Additionally, HELOC borrowers could benefit from resetting their high credit limit based on their property’s new appraised value, allowing for even more flexibility.

Not every homeowner will benefit from an immediate refinance. As Neil Christiansen from Churchill Mortgage notes, refinancing comes with costs, which may take several years to recoup. Homeowners should calculate whether the savings will outweigh these upfront costs. If the break-even point on refinancing costs exceeds three to five years, reinvesting that money elsewhere may yield a better return.

Additionally, future rate cuts expected in 2024 and 2025 may make refinancing even more beneficial later. Melissa Cohn, Regional Vice President at William Raveis Mortgage, advises homeowners with high-rate, fixed loans obtained within the past year to consider waiting for even lower rates. Refinancing repeatedly is costly, so waiting for additional rate reductions may offer the best balance between savings and timing.

Bottom Line

Deciding to refinance your home equity loan depends on your current rate, financial goals, and expectations for future rate cuts. If refinancing now offers a noticeable reduction in payments, you may want to lock in these savings. However, patience may pay off if waiting a bit longer could yield more significant savings with further rate cuts. Ready to make a move to Orange County? Let’s connect!

Reference: “Should you refinance your home equity loan now that rates are cut? Experts weigh in” by Matt Richardson. Published on November 11, 2024.