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have traditionally been one of the more affordable ways to borrow a large sum of money. But in the interest rate climate of recent years, they've been one of the only ways to do so. As surged to a record high last year, actually declined. And with personal loan rates now over 12%, on average, home equity loan rates are materially lower at just 8.36% for qualified borrowers. Additionally, with , the latter two options don't come with and an elevated hovering over $300,000 now, home equity loans are one of the preferable ways to borrow a large amount of money at an affordable rate right now.
That all noted, home equity loans and their counterparts use the home as collateral in these borrowing exchanges. If you're unable to make your repayments as agreed upon, you could risk back to the lender. So you must calculate your repayments with precision before getting started. And it's important to know some timely, but potentially costly, mistakes to avoid in the unique economic climate of May 2025. Below, we'll detail three home equity loan mistakes borrowers should watch for (and avoid making) this May.
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To maximize their chances of home equity loan borrowing success this month (and in the months and years ahead), prospective borrowers should know which timely errors to avoid. So, if you're looking to borrow with a home equity loan, this May:
and in the opening months of 2025. But that decline has been gradual and rates haven't dropped nearly as significantly as they have, for example, on . A 15-year home equity loan interest rate, based on historical data, was 9.08% in January 2024. Now that rate is 8.42%.
And while a lower rate is always preferred, that drop and trend for future declines isn't so significant that it's worth waiting for additional rate reductions to come. Not only will that delay the financing needs you already have, but it could be risky to do if any of the lower suddenly reverse course. Instead, it's better to lock in today's low home equity loan rate while available, secure the financing, and look to when rates drop considerably again in the future.
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If you're looking to secure the lowest home equity loan rate possible, then it behooves you to for a timely opportunity to act. Home equity loan rates change often, influenced by multiple market conditions and data points, ranging from the inflation rate to the federal funds and prime rates to the central bank's monetary policy.
Individually or in combination with one another, these factors are strong enough to drive home equity loan rates up or down, sometimes in the same week. And with a new Fed meeting set for May 6 and May 7 (there was no Fed meeting in April) and a new inflation reading scheduled for release on May 13, there are plenty of influencing factors at play this month. So, pay close attention to the market for a timely opening to exploit.
Because rate declines may not continue unabated and because the market conditions can easily make a home equity loan rise or fall, it's important to have your documentation ready to take advantage when an opportunity arises. You can, in theory, when found, but you'll need to be prepared to do so.
It makes sense, then, to gather the you'll likely need in advance, so you're one step closer to locking a low rate when made available. And, while you're gathering your paperwork, be sure to understand how your can impact any rate offers. If your score isn't good, it may make sense to take steps there to before applying for the loan.
A home equity loan is a secure and reliable way to borrow money in today's economy, but it will require a strategic and, sometimes, nuanced approach. By avoiding these timely mistakes this month, homeowners can improve their chances of securing a low-rate home equity loan, setting themselves up for long-term borrowing success. Just don't wait too long to act, either. With rates low now and the projections of the interest rate climate varied, many would benefit from locking a rate now before potentially refinancing in the future.
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