January 9th, 2020 9:25 AM by Jackie A. Graves, President
The Federal Reserve likely will stay on the
sidelines this year, Bankrate says.
The presidential election occurring in late 2020 will be a boom to
home equity borrowers, regardless of who wins, according to a forecast
That’s because the Federal
Reserve will try to sit on the sidelines this year to
avoid the appearance of influencing the political process, said Greg McBride,
Bankrate’s chief financial analyst. That would keep the U.S. prime rate at its
current 19-month low, he said.
Home equity rates “would largely hold steady if the Federal
Reserve isn’t changing interest rates,” he said.
The Fed has a direct impact on equity lending because the
the interest rate banks give their best customers, moves in tandem with the
central bank’s benchmark rate. And, most home equity loans have variable rates
indexed to the prime rate.
“It’s the best of times for home equity borrowers,” Bankrate’s
forecast said. “Interest rates are super-low and the Federal Reserve, after
cutting rates three times in 2019, has indicated that rate hikes are not on the
horizon in 2020.”
U.S. homeowners are sitting on $6.2 trillion in untapped
home equity, according to Black Knight.
“This could indicate that homeowners are being more cautious about
borrowing home equity than they were before the Great Recession when many homeowners
ended up owing more on their homes than they were worth,” Bankrate said in its
The average rate for a $30,000 home equity line of credit, or
HELOC, was 6% in December, according to Bankrate. Lenders would express that as
“prime plus 1.25%,” meaning the prime rate, currently 4.75%, plus the margin
the lender is charging.
That’s much higher than the average rate for a 30-year fixed
first-lien mortgage, which was 3.72% in December, according to Freddie Mac.
That difference has boosted the volume of so-called “cash-out
refis,” refinanced loans with balances higher than the original mortgage. About
$6.1 billion of HELOC debt was extinguished that way in the
third quarter, the highest in almost two years, according to Freddie Mac data.
To view the original article click here