When it comes to financing home improvement projects, consolidating debts or covering emergency expenses, the costs can quickly become overwhelming. One way to get extra funds is with a home equity line of credit or HELOC. A HELOC allows you to borrow against the equity in your home at rates considerably lower than other financing options, such as credit cards or personal loans.
And now may be a good time to take out a HELOC. After soaring for some time, HELOC rates are beginning to show signs of cooling. If you’ve been considering a home equity line of credit, this may be the opportune moment to do so. Read on to learn why.
Check out HELOC rates here to see how much you could borrow.
Why you should use your home equity now
Here’s why today’s rates make this an ideal time to consider a HELOC.
You’ll save money
The most obvious reason to tap into your home equity now is to save on interest over the course of repaying your HELOC.
With a HELOC, you’ll already have access to funds at a lower interest rate than with other loan types. For example, average credit card interest rates are about 20% currently. HELOC rates, on the other hand, average about 8% — more than 50% lower.
This means significantly lower interest payments, which can make a big difference in your budget. When HELOC rates are low, you can save even more.
Compare home equity rates online today.
Rates could rise again soon
While some hope the Fed’s most recent rate hike will be the last we see for a while, that’s by no means guaranteed.
“The Fed is no longer flagging that further hikes should clearly be expected, but this falls short of a strong commitment to ‘pause’ on rate hikes,” said Brian Coulton, chief economist at Fitch, recently told CBS News. “They are still talking about how they will determine the ‘extent’ of additional policy firming — not whether additional tightening is needed or not.”
If you’ve been waiting to get a HELOC, it may be smart to act now before rates go back up.
Other benefits of HELOCs
Lower interest rates aren’t the only things that make home equity lines of credit worthwhile. HELOCs also offer:
- Large borrowing amounts: The average American can borrow about $30,000 with credit cards, according to data from Experian. HELOCs may allow you to borrow hundreds of thousands of dollars, depending on your credit score and home equity amount.
- Ability to borrow only what you need: Another popular home equity option, home equity loans, require you to borrow a lump sum, and you pay interest on the total amount borrowed. HELOCs give you a credit line you can draw from as needed, and you only pay interest on the amount you take out.
- Delayed repayment: With home equity loans, credit cards and personal loans, repayment starts immediately after receiving funds. HELOCs have two periods: a draw period (usually five to 10 years) and a repayment period (usually 10 to 20 years). This gives you some breathing room if things are tight.
- Tax advantages: If you use your HELOC to make IRS-approved home repairs and improvements, the interest may be deductible. “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.”
Ready to explore your HELOC options? Start here!
The bottom line
A HELOC is an excellent option for homeowners who need access to funds at a low interest rate.
That said, it’s important to realize that interest rates aren’t guaranteed to remain low over the term of the loan. HELOC interest rates are typically variable, which means they can increase or decrease over time. While HELOCs usually come with a cap on how much the rate increase, you should make sure to understand the terms and conditions of any HELOC agreement so you know what you’re getting into.
