Home-equity loans more available

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Rising mortgage rates could mean that more homeowners will stay where they are and renovate their home, experts say.

The interest rate on a 30-year fixed-rate mortgage is expected to hit an average of 4.7 percent in the fourth quarter of 2017, according to Mortgage Bankers Association. That’s up from an average of 3.6 percent in 2016.

Svenja Gudell, who is the chief economist of real-estate tracker Zillow, says homeowners won’t want to give up the super-low mortgage rate that they acquired over the past several years, which they’d do if they sold their home and bought a new one.

However, the interest rate on a home-equity line of credit (HELOC), which is a type of home-equity loan, also is expected to rise, because it increases in step with Federal Reserve interest-rate hikes, says Greg McBride, who is the chief financial analyst for Bankrate. In March 2017, the national average interest rate on a HELOC was 5.15 percent, according to Bankrate.

Still, a HELOC typically is a better option to fund home improvements than is a cash-out refinance, in which the amount of the new mortgage is bigger than is the balance of the old one and the homeowner takes the difference. Although a HELOC carries a higher interest rate, homeowners don’t have to refinance the “whole first balance to pick up money for the kitchen” as they would with a cash-out refinance, says Guy Cecala, who is the CEO of Inside Mortgage Finance, which is a mortgage-information company. Lenders are expected to make home-equity loans more available in 2017, Cecala adds.