For borrowers hoping to secure a home equity line of credit (HELOC) in 2018, sooner rather than later would be the best approach according to a new 2018 forecast by Bankrate. With the Fed recently increasing interest rates, Bankrate predicts HELOC borrowers could see an increase of 75 basis points during 2018.
The Federal Reserve raised interest rates by a quarter percentage point in December, from 1.25 percent to 1.5 percent. Several more rate hikes are widely expected throughout 2018, although experts differ as to how many are likely. Since HELOC rates are tied to those interest rates, HELOC rates would increase further as well.
“Many HELOC borrowers will be welcomed to 2018 with a quarter-point increase in their rate courtesy of the Fed’s December rate hike,” says Greg McBride, CFA, Bankrate’s Chief Financial Analyst, who predicts three Fed rate hikes in 2018.
According to Bankrate, the 30K HELOC rate as of December 27, 2017, was 5.43 percent. Two months earlier, on October 25, it was at 5.39 percent. By the end of 2018, McBride predicts the average HELOC rate will have climbed to 5.85 percent.
“The increase in rates is compounding the issue of HELOC borrowers coming to the end of their draw period and seeing their payments jump as the line of credit switches into repayment mode,” says McBride. “Together, it’s a double whammy.”
TransUnion’s 2018 Forecast, released in mid-December, predicted HELOCs to make a strong showing in the year to come, predicting 1.6 million HELOC originations for 2018. Fewer than half that number were originated during the previous five-year period.
McBride also laid out his predictions for mortgage rates in 2018, which McBride sees “dipping below 4 percent at least once, spiking above 4.5 percent, and closing the year around 4.5 percent (on average),” according to Bankrate.