Rising Mortgage Rates Send a Message to Home Equity Shoppers: Don't Delay!

By Richard Barrington
LoanPage.com Columnist

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Mortgage rates continue their sustained advance. For anyone considering a home equity loan, the ultimate result of this can be doubly negative. Therefore, it may be wise to act on a home equity loan before that impact becomes greater.

Rising mortgage rates obviously make loan interest more expensive, but it is their impact on home prices that separates conditions for new mortgage borrowers from those for home equity borrowers.

Rising Rates

Both 15-year and 30-year mortgage rates rose for five straight weeks from May 10th through June 14th, increasing by over half of one percent in the process. For any new mortgage borrower, these increases translate directly into higher interest costs. In other words, for new home buyer and home equity borrower alike, higher rates mean higher borrowing costs.

Dampening Effect on Prices

At least for the new mortgage borrower, there can be a silver lining. Rising mortgage rates have a dampening effect on market demand, which in the long run can depress home prices. In short, rates and prices can act as something of a see-saw--as one goes up, the other goes down. Therefore, for the home buyer, higher borrowing costs might be at least somewhat offset by lower prices.

On the other hand, the home equity borrower has a stake in home prices as well -- they determine the value of the home, and therefore the amount of equity available. If rising rates result in lower prices, then this means both higher borrowing costs and less equity available.

The lesson then is that if you still have the equity you need available, you may not want to wait for these trends to play out any further. If things go the wrong way, the impact could be doubly negative.

Freddie Mac

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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