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Do rising interest rates impact your home equity?

Do rising interest rates impact your home equity?

If you already own a home, mortgage rate fluctuations won't impact you as much as borrowers applying for a new mortgage. But they can impact your home equity. What's more significant for homeowners shopping for home equity and home equity lines of credit, or HELOCs, is the prime rate -- another baseline rate banks use for lending.

With mortgage rates at more than 6%, a cash-out refinance won't make financial sense for most homeowners who already locked in lower mortgage rates during the pandemic. In a rising interest rate environment, home equity loans can be a good option for financing. You can borrow against your home equity at a relatively low-interest rate, and with a home equity loan, you can lock in a fixed interest rate so you don't have to worry about the Fed's next rate hike.

As a homeowner, keep in mind that although mortgage rates may not directly impact you if you're trying to sell your home, higher rates could limit the number of would-be homebuyers in your local market.

If you’re thinking of converting your residential property into a house for rent, that might be your smartest choice today. Right now, we may be facing an interest rate hike, and this may affect your real estate investments.