It is no secret that house loan interest rates have reached generational highs, decreasing the purchasing power of first-time and repeat homebuyers. While mortgage rates are expected to fall from recent highs over the next year, they are unlikely to return to the all-time lows seen just a few years ago.

If you’re wondering what mortgage rates will be in the future, here’s what you should know.

Fixed mortgage rates are likely to remain stubbornly high and remain near 20-year highs for home buyers and borrowers wishing to refinance. However, if the Federal Reserve chooses to lower the federal funds rate in response to a tepid economy or reduced inflation levels, mortgage lenders could then offer lower rates and better terms to borrowers in response.

Here’s an overlook from multiple mortgage rate experts about what to expect.

Lawrence Yun, chief economist at the National Association of Realtors (NAR)

“A little drop in mortgage rates from nearly 8% currently to under 7% or even near 6% is expected by the spring of next year. The key reason is for the Fed to cut interest rates in 2024 once the inflation data is clearly under control.”

Robert Dietz, chief economist at the National Association of Home Builders (NAHB)

“NAHB is forecasting a gradual decline for mortgage rates as the economy slows due to the lagged effects of tighter monetary policy. Slowing economic growth and grudgingly lower inflation readings will place downward pressure on long-term interest rates after peaking in late 2023. These conditions should allow the Fed to begin reducing nominal interest rates by mid-2024 while keeping inflation-adjusted rates as restrictive.”

Peter C. Earle, economist at the American Institute for Economic Research

“If we look at the rate predictions of financial institutions that trade in futures and swaps (market implied policy rates), there’s a consensus that the Fed will have cut rates a bit by the end of 2024 and even more in 2025. None of that is guaranteed, of course, but the firms that deal in money markets think rates are headed lower starting next year. 

If the Fed lowers rates, whether it’s because the US enters a recession or there’s a pronounced economic slowdown, mortgage rates will follow. If mortgage rates retrace their steps with the Fed’s policy rate on the way down in the same way they did on the way up, at a Fed Funds rate of 4% to 5%, 30-year fixed mortgages would be in the roughly 6% to 7% range. But that doesn’t mean we won’t see mortgage rates at over 8% before the retreat begins.”

Dr. Anessa Custovic, Ph.D., chief information officer (CIO) of Cardinal Retirement Planning Inc. 

“Mortgage rates in 2024, especially for the 30-year mortgage, will continue to have a ‘premium’ of around 2% above the 10-year Treasury during 2024. This puts mortgage rates solidly in the range of 7.25% to 7.75%. Even if there are unexpected rate cuts in 2024, we cannot see a pathway to 30-year mortgages below 6% in 2024.”

Freddie Mac, Fannie Mae and Mortgage Bankers Association

Freddie Mac anticipates that, due to inflation remaining above the Federal Reserve’s target 2% goal and the Fed not cutting the federal funds rate, mortgage rates in turn will likely remain above 6% for at least the rest of 2023. Fannie Mae predicts rates peaking at 7.7% in the fourth quarter of 2023 and reducing from 7.6% to 7.1% over the course of 2024.

In its November 2023 Mortgage Finance Forecast, the Mortgage Bankers Association (MBA) anticipates 30-year rates starting in 2024 at 7.1% and gradually declining to 6.1% at the close of the year before dipping as low as 5.5% in 2025.

Current mortgage rates have been floating between approximately 7.5% and 8.3% since October 2023 for 30-year fixed interest rates, with an average of 7.52% as of Dec. 1, 2023. The average 15-year mortgage rate has ranged between about 6.7% and 7.4% in that same time, with an average of 6.71% as of Dec. 1, 2023. Rates for both terms are approximately 75 basis points higher year-over-year.

As is typical, refinancing a mortgage incurs higher rates than a home purchase loan. As of Nov. 30, 2023, a 30-year fixed refinance has an average rate of 7.70% and 6.92% for a 15-year mortgage refinance.

Mortgage interest rates first broached 7% for a 30-year fixed loan in October 2022. This happened again in May 2023, after which the rate fluctuated and hit a peak of 8.3% in October 2023. This made for the highest rates since March 2002, which was the last time 30-year rates went above the 7% threshold.  

To put the current rates in perspective, the lowest recorded average 30-year mortgage rate was 2.65% for the week ending on Jan. 7, 2021. Present rates appear to remain closer to the historical average compared to the below-average rates that began with the Great Recession when the 30-year rate mostly remained between 3% and 5% from January 2009 until May 2022. 

Experts estimate that mortgage interest rates should peak near 7% — possibly up to 8% — and gradually trend lower, potentially landing between 5% and 6% before the end of 2024. 

Read Also: How to Secure the Best HELOC Rate: Tips and Strategies

As a reminder, the macroeconomic and housing market conditions are continually changing. As such, questions remain regarding what the future actions of the Federal Reserve will look like and how quickly rates will drop once and if the current trend of higher-for-longer rates reverses.

What is the Future of the HELOC Rates?

As we move further into 2024, homeowners are keeping a close eye on home equity line of credit rates. The general trend in HELOC rates throughout 2023 and into 2024 has been a gradual increase, largely influenced by the Federal Reserve’s monetary policy decisions and the overall economic climate.

The average HELOC rate in 2024 hovers around 7.5% to 8.5% for most borrowers.

According to recent data from The Wall Street Journal, the average HELOC rate in 2024 hovers around 7.5% to 8.5% for most borrowers. However, it’s essential to note that individual rates may vary depending on several factors, such as the borrower’s credit score, loan-to-value ratio (LTV), credit line amount, and the lender’s specific terms.

To put this into perspective, let’s consider an example of what an average borrower might expect to receive today:

• A homeowner with a credit score of 740, a home value of $400,000, and an outstanding mortgage balance of $200,000 could potentially secure a HELOC with an annual percentage rate (APR) of approximately 7.8%.
• This rate would allow them to access a credit limit of up to $100,000 in equity, assuming a combined loan-to-value ratio of 75%.

It’s important for borrowers to understand the factors that affect the HELOC rates they are offered.

• Credit score plays a significant role, with higher scores generally translating to lower interest rates.
• Loan-to-value ratio is another crucial factor, as lenders typically prefer a combined ratio of 80% or less when considering both the primary mortgage and the HELOC.
• Credit line amount requested can also impact HELOC rates, with larger lines of credit sometimes carrying higher interest rates.

Additionally, market conditions, such as the prime rate and the overall demand for HELOCs, can influence the annual percentage rates lenders offer.

To ensure you get the most competitive rates, consider the following tips:

• Shop around and compare offers from multiple lenders, including your current mortgage lender
• Maintain a strong credit score (740 or higher) and a low debt-to-income ratio (DTI)
• Keep your combined loan-to-value ratio (CLTV) at 80% or below
  • CLTV is calculated by dividing the total of your mortgage balance and desired HELOC amount by your home’s value
  • A lower CLTV demonstrates lower risk to lenders, potentially resulting in better rates
• Consider a shorter draw period, as longer draw periods may come with higher rates
• Be prepared to provide documentation of your income, assets, and debts
• Evaluate whether a variable or fixed-rate HELOC best suits your needs
  • Variable rates may start lower but can fluctuate over time
  • Fixed rates may be slightly higher but offer more predictability
• Negotiate with lenders and ask if they can match or beat competitor rates
• Be aware of any fees associated with the HELOC, such as annual fees or closing costs
• Consider automatic payments or a direct deposit relationship with the lender, which may qualify you for rate discounts

By following these tips and maintaining a strong financial profile, you can increase your chances of securing the best HELOC interest rates. Remember to carefully compare offers, negotiate with lenders, and choose the option that best fits your long-term financial goals.

HELOC credit limits

When considering a home equity line of credit, one of the most important factors to understand is the credit limit. The credit limit is the maximum amount of money a borrower can access through their HELOC, and it’s determined by a combination of factors, including the home’s value, outstanding mortgage balance, and the lender’s risk assessment.

In 2024, the average HELOC credit limit varies depending on the lender and the borrower’s specific circumstances. However, most lenders typically allow homeowners to borrow up to 80% or 85% of their home’s value, minus the outstanding mortgage balance.

• For example, if a home is valued at $500,000 and the outstanding mortgage balance is $300,000, the homeowner may be able to secure a HELOC with a credit limit of up to $100,000 or $125,000, depending on the lender’s policies.

It’s important to note that while some lenders may offer higher credit limits, borrowers should carefully consider their financial situation and ability to repay before accepting a larger credit line.

Borrowers can expect lenders to conduct thorough assessments of their credit history, income, and debt-to-income ratio when determining the credit limit they are willing to offer.

Ultimately, the credit limit a borrower can expect in 2024 will depend on their personal finances and the lender’s risk appetite. Homeowners should shop around and compare offers from multiple lenders to find the most suitable HELOC credit limit for their needs and financial circumstances.

Choosing the right HELOC lender doesn’t have to take a lot of effort. However, when evaluating potential lenders, there are several key factors to consider.

• Competitive HELOC rates: The HELOC interest rates offered by lenders can significantly impact the overall cost of your loan. Look for competitive home equity line of credit rates and compare them across different lenders. Remember, even a small difference in the interest rate can have a substantial effect on your monthly payments and the total amount paid over the life of the loan.
• Fees: In addition to HELOC rates, be aware of any fees associated with the loan. This can include application fees, origination fees, appraisal fees, closing costs, and annual fees. Some lenders might offer lower interest rates but charge higher fees, so it’s important to consider the total cost.
• Loan terms: Examine the terms of the HELOC, such as the length of the draw period, the repayment period, and any penalties for early repayment.
• Customer service: Quality customer service is important. A lender that offers responsive, helpful support can make borrowing much smoother. Read customer reviews and testimonials to gauge the lender’s reputation for service.
• Flexibility and additional features: Some lenders might offer extra features like the ability to convert a portion of your HELOC to a fixed-rate loan or offer different types of repayment and rate options.

You might discover that your best rate for a HELOC is available through your current bank or a federal credit union, since many financial institutions provide rate discounts to existing customers. Streamlining your loan repayments with the same institution where your checking account or savings accounts are held can be advantageous.

How do I Find the Best Rate on a HELOC?

Shopping around for a HELOC is crucial — for the most competitive interest rate, obviously, but for other favorable terms and conditions, too. Prepayment penalties, the length of the draw period, minimum draw amounts, interest-only payments, annual fees, “lock-in rate” fees: These factors can significantly impact your overall costs throughout the life of the loan.

Understand introductory rates

When you think you’ve found a great HELOC rate, find out how long it will last and how it might change over time. A HELOC typically comes with an adjustable rate during the initial draw period that fluctuates in sync with the prime rate or other benchmark index. However, some lenders may offer you a fixed introductory rate, sometimes called a teaser rate.

“Some lenders offer very attractive introductory rates for the first six to 12 months only to increase it meaningfully after that period,” says Vikram Gupta, executive vice-president and head of home equity for PNC Bank.

Find out how long your introductory rate will last and what your rate will be after that period ends — especially if you’re planning to withdraw funds over several years. A lower rate during a yearlong introductory period may not be worth it if your rate skyrockets after.

Consider different types of lenders

While your current lender may offer you a good deal on a HELOC, don’t stop there. Compare estimates from other players, including national banks, smaller community banks, credit unions and online mortgage lenders. Each type of lender has its own advantages.

For instance, online lenders generally have lower operating costs, which can allow them to offer you lower interest rates, while local banks and credit unions may have a better understanding of your local market and offer you more personalized service — especially if you already do business at that institution. To get the best HELOC rate, try to get at least three quotes when considering your options.

Maintain good credit

Having a good credit score is one of the key ways to obtain a competitive interest rate when applying for HELOC. A lender will consider your FICO credit score to determine the interest rate. A credit score of 700 or above will most likely qualify you for the best interest rates, though homeowners with a score of as low as 620 might still get approved.

There are steps you can take to help improve your credit score when applying for a HELOC. Some of the quickest actions you can take include checking your credit report and disputing any errors, keeping your credit card balances low and making all credit payments on time.

It is also important to be very careful about opening new lines of credit. Your credit score declines slightly every time you open another account.

Look for rate caps

Some HELOCs offer rate caps as a safeguard against rising interest rates. If you select a HELOC with a low rate cap, you’re protected from paying more than that maximum, even if the prime rate spikes. If there is no cap, you run the risk of your interest rate pushing your monthly payment beyond what you can afford.

Choose shorter draw and repayment periods

Many lenders have only one set of HELOC terms, but some lenders may let you choose the length of your draw period and the repayment period. Opting for a shorter repayment term can decrease the amount of interest you pay.

In addition, you may score a better interest rate if you select a shorter repayment timeline. Check with different lenders to see if changing the length of the draw or repayment periods is a possibility.

Take advantage of discounts

If you have an existing relationship with a bank or credit union, you may qualify for member discounts on your HELOC rate. Many lenders also offer rate discounts for setting up automatic payments.

You should still talk to multiple lenders, though, as the best deal isn’t always with a bank you already have a relationship with.

Summary

A HELOC can be a useful way to cover large or unexpected expenses. Even with the continued rate hikes, in many cases, HELOCs will still be a better bet than credit cards and even home equity loans (though the interest-rate gap between the two has closed in the last year). But in the current economic environment, it’s more important than ever to do your due diligence before choosing a lender.

As you shop around, remember that there are steps you can take to reduce the amount of interest you pay over the life of the loan including considering different types of lenders, opting for shorter draw periods, locking in rate caps and taking advantage of discounts.

It’s also a good idea to work on improving your credit score in order to qualify for the best offers, ideally several months before you apply. That’s a strategy for all seasons, no matter what the current interest-rate climate is like.