No doubt you have heard about the massive increase in interest rates. Since early 2022, interest rates have risen across all aspects of our lives. CDs, savings accounts, car loans, and credit cards have all seen large increases in interest rates over the past 20 months.
From people buying a home to commercial properties struggling, interest rates have had a major impact on real estate investors. With the rising rates, we have heard about the coming real estate crash that will crush the real estate market. I am not here to talk about this potential crash since I don’t think it will happen.
Interest rates have also increased on HELOCs. According to Bankrate, they’ve gone from an average of 4.24% in January 2022 to just over 10% in November 2023. That is a drastic increase in such a short time. The Federal Reserve has raised interest rates 11 times since early 2022, making a HELOC less attractive than it was before.
Here, I’ll provide an overview of how high interest rates have impacted HELOCs. There are several things for real estate investors to consider in addition to higher interest rates.
What Is a HELOC?
A HELOC stands for a home equity line of credit. It’s a revolving credit line that property owners can get from most lenders if you have equity in your home. A HELOC is similar to a credit card, where you can use it over and over again. Each time you make a payment, you have more credit you can use.
Most HELOCs have variable interest rates. If you have had a HELOC for more than two years, you have seen the rate go from 3% to 5% to somewhere in the 8% to 10% range.
Some lenders offer a fixed interest rate, which allows you to lock in the interest rate for a specific period. A fixed interest rate may not be the best option since interest rates are high right now, but it’s definitely something to consider if you think interest rates will continue to rise.
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