Mortgage Rates Up: Still A Good Time for a Home Equity Loan?

By Richard Barrington Columnist

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National news stories practically screamed the news: "Mortgage Rates Hit Ten Month Highs". Does that mean you should now reconsider taking out a home equity loan? Use a broader perspective before you join the media in hitting the panic button.


Mortgage Rates: The Long View

The bad news is that mortgage rates in early June reached their highest levels since August of 2006. Since people are influenced by their most recent experience, and since mortgage rates have been lower in recent months than they are currently, it is natural that some might view mortgages now as being expensive.

The timing of home equity loans tends to be more discretionary than that of new home mortgages, so in particular the rise in rates might make a home equity loan shopper question whether this is a good time for that loan. To answer this question, it's helpful to view mortgage rates with a perspective that takes in more than just the past several months.

Even after rising to 6.53% as of June 7th, 30-year mortgage rates were still lower than the average rates in 31 of the past 35 years. Thus, from a historical perspective, rates are still relatively low, and thus this is not a bad time to borrow.

Don't Hesitate When Inflation Is Threatening

That longer-term perspective is reassuring, but it should not lead to complacency. Mortgages vary with market interest rates. In turn, interest rates respond to inflation, and the financial markets have been jittery about inflation lately. With Middle East tensions, commodity shortages, and the beginning of hurricane season, there's no telling what might be the next thing to set off those inflation jitters. In short, if you have been considering a home equity loan, you may want to act while rates are still fairly reasonable.

Associated Press
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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