Inflation may finally be cooling, but the higher interest rates meant to combat it appear to be staying put, at least for the short-term. With the Fed raising rates yet again last month — this time to a 22-year high — many Americans find themselves with limited borrowing options. The cost of everything from credit cards to personal loans is significantly higher than it was just a few years ago.
This is especially felt by homeowners looking to sell and move to a different home or those who just want to refinance. In these instances, many owners would find themselves saddled with a significantly higher interest rate than the one they currently own.
Because of this, many have instead turned to home equity loans and home equity lines of credit (HELOCs). This form of low-interest credit is gaining popularity due to its multiple, timely advantages.
If you think you could benefit from taking out a HELOC, then start exploring your options here now.
Why HELOCs are becoming more popular
According to the Federal Reserve Bank of New York, during the first quarter of 2023, balances on HELOCs “increased by $3 billion, the fourth consecutive quarterly increase following a nearly 13-year declining trend; the outstanding HELOC balance stands at $339 billion.”
It’s easy to see why that decline has been reversed.
With mortgage rates currently hovering around 7%, it may not make sense for many homeowners to pack up and move elsewhere. Instead, they could be better served by using the equity they’ve accumulated in their home to improve it via renovations and major repairs.
Despite the elevated interest rates, home values have actually increased in some parts of the country, giving homeowners ample equity to use as they see fit. And while rates on home equity loans and HELOCs have also increased in recent months, they’re still generally much lower than what can be secured with alternatives like credit cards and personal loans.
“The natural conclusion millions of homeowners are coming to is that ‘loving it’ instead of ‘listing it’ is their only option,” Justin Goldman, co-founder and CEO at RenoFi, a TruStage Ventures portfolio company, recently told CBS News. “Home equity loans allow homeowners to borrow what they need for a renovation without having to refinance their first mortgage.”
Are you one of the millions of homeowners considering a home equity loan or HELOC? Then start exploring your options here now to see what you could qualify for.
Other HELOC advantages
While the timeliness of using a HELOC now is especially advantageous, it’s not the only benefit of using your home equity this way. Besides the generally lower interest rates, here are two other major benefits that HELOCs come with:
- Tax benefits: If you use your HELOC to make IRS-eligible improvements to your home, you could be eligible to deduct the interest you paid on the line of credit when you file your tax return. “Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS says. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”
- Flexibility: HELOCs work as revolving lines of credit, similar to credit cards. This means that you’ll only pay interest on the amount you actually wind up using — not the amount you were approved to use. This flexibility will save you interest you would have otherwise been stuck paying, and it will give you freedom to use the money as you see fit. This is particularly helpful if you’re unsure about the exact amount of money you’ll need — but don’t want to get stuck paying for money you don’t end up using.
Learn more about the benefits of using a HELOC here.
The bottom line
With higher interest rates, many Americans find themselves with limited options, particularly when it comes to their homes. HELOCs, however, offer borrowers a unique way to improve and renovate their existing homes at a lower interest rate than many alternatives. This has increased the popularity of this credit option in recent months. But HELOCs are also advantageous due to their tax deduction benefits and the flexible terms of use they provider borrowers, making them a viable option in a variety of economic conditions.