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Is now a good time to use a HELOC?

If you’ve been considering a HELOC, you may want to act now before property values drop or interest rates rise any further

By Credible
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A HELOC is a line of credit that allows you to take advantage of the equity in your home. Learn the benefits of using a HELOC. (Shutterstock)

Home prices are at an all-time high and show no signs of slowing down any time soon. In Q2 2022, the median listing price was $440,300, according to the Federal Reserve Bank of St. Louis, which is up nearly 40% from three years earlier. That means many homeowners have access to equity they can use to finance a major purchase or home renovation project.

A home equity line of credit (HELOC) is a line of credit that you can borrow against as needed, and the maximum amount is determined by the equity you have in your home. HELOCs come with a number of benefits for homeowners, including low interest rates and flexible terms.

If you’re interested in tapping into your home’s value, Credible can help you find the best option for a cash-out refinance. Visit Credible to compare mortgage refinance lenders without affecting your credit score.

Is now a good time to use a HELOC?

Right now, homeowners are sitting on record levels of equity thanks to a booming housing market. It’s a difficult time for potential homebuyers, but it gives current homeowners a huge advantage.

If you’ve been considering taking out a HELOC, now is the time to act. If you wait, home prices may decrease and you won’t be able to borrow as much in the future.

HELOCs can be used for any purpose — you can use the funds to consolidate debt, make home improvements or finance other investments.

IS THE INTEREST ON A HELOC TAX DEDUCTIBLE?

HELOCs add an extra level of stability 

Using a HELOC allows you to hold your money for an extended period of time. This is important because when interest rates rise in the future, you have a locked price.

That means you’ll still be able to borrow money in a situation where you normally wouldn’t be able to. And if you take out a fixed-rate HELOC, your interest rate will stay the same even if the market changes.  

HELOCs allow you to only pay for what you use

If you take out a personal loan, you’re required to repay the entire loan amount with interest even if you don’t spend it all. With a HELOC, you’re approved for a maximum loan amount and you can choose to spend your entire credit line or only part of it.

The difference is with a HELOC, you’ll only repay and be charged interest on the money you actually spend. So if you take out a HELOC for $50,000 but only spend $20,000, you’ll only repay the $20,000.

That means a HELOC is a good option for projects where you don’t know the full cost. Here are two scenarios where using a HELOC might be an added benefit to you:

  • Paying off your medical expenses
  • Locking in the rate on your HELOC now so you can use those funds down the road for home improvements or renovations

While Credible doesn’t offer HELOCs, its marketplace does show you options for cash-out mortgage refinances, which also allow you to tap the equity in your home. You can visit Credible to compare multiple mortgage lenders at once and choose the one with the best rate for you.

HELOCs have low interest rates

Borrowers have a lot of different options when it comes to how they choose to borrow money. Many homeowners take out a HELOC because the interest rates tend to be lower than other lending products, like credit cards and personal loans.

For example, the average interest rate for a personal loan with a 24-month repayment is 10.16%, according to the Federal Reserve. HELOC interest rates vary by lender, but typically run lower than that.

And credit cards are the most expensive of all, with an average interest rate of 15.13%. Of course, interest rates are constantly changing, but even if rates go up in the future, you can still expect them to be lower with a HELOC.

HOME EQUITY LOAN AND HELOC REQUIREMENTS IN 2022

HELOCs add equity and can help you increase your home’s sales price 

Although some housing experts say the market is starting to change, we’re still operating in a seller’s market. And many homeowners are doing renovations to increase their home’s sale price.

Homebuyers can get back 74 cents for every dollar spent on home renovations, according to HomeLight. Updating your kitchen, expanding your outdoor space and making your mudroom more functional can all increase the value of your home — and, in turn, your home equity. 

If you’re interested in pulling cash out of your home’s rising value or potentially lowering your monthly payments, you may want to also consider a cash-out refinance. Credible can help you compare options for this type of home loan.