3 big HELOC benefits to know with inflation cooling
Inflation fell in April. And again in May. And the latest report from the Bureau of Labor Statistics showed it dropped again in June. That's encouraging news for millions of Americans and could portend a cut to the federal funds rate, perhaps before the summer is over. With that rate frozen at its highest point in 23 years, a reduction would provide some relief for borrowers currently struggling with higher rates on everything from mortgages to student loans to credit card debt and more.
During this time, however, homeowners could still access large sums of money by accessing their existing home equity. With a home equity loan or home equity line of credit (HELOC), owners could potentially access hundreds of thousands of dollars and they can do it by paying much lower rates than the alternatives, thanks to their home serving as the collateral in these borrowing circumstances.
But with inflation continually cooling, a HELOC has arguably emerged as the better way to do so, both this July and in the weeks and months ahead. Below, we'll break down three big HELOC benefits homeowners should be aware of with inflation continuing to cool.
Start by seeing what HELOC interest rate you could secure here now.
3 big HELOC benefits to know with inflation cooling
Here are three big advantages to opening a HELOC as the inflation rate drops:
Lower interest rates
HELOCs, while having slightly higher interest rates than home equity loans, are still in the single digits right now with the average being just 9.17% as of July 12, 2024. Considering that personal loans are averaging over 12% and credit card rates are around 21%, there's much to be saved by using a HELOC now. Plus, unlike the alternatives, the interest you pay on a HELOC could be tax-deductible if used for eligible home repairs and improvements.
Start exploring your HELOC options online today.
Variable interest rates
Variable interest rates (like the ones HELOCs come with) aren't always ideal, particularly in recent years as the Federal Reserve issued a series of rate hikes. That left borrowers with variable rates paying more and more each month. But, inversely, it can be an advantage now with inflation cooling.
A drop in the inflation rate can lead lenders to offer lower rates in anticipation of a formal cut to come from the Federal Reserve. And a formal cut will cause these rates to drop lower. So those who open a HELOC now could be well positioned to benefit from multiple rate drops shortly.
No refinancing closing costs
Because of the inherent variability that HELOC rates come with, borrowers will not have to complete a refinance application to secure the new, lower rate when it becomes available. The HELOC will simply adjust independently (usually each month).
Not only will homeowners save money when the rate adjusts downward, then, but they'll also save by not having to pay the costs of refinancing to that lower rate. While home equity loans will need to be refinanced to lock in lower rates, HELOCs will adjust on their own, saving borrowers a significant amount of money, particularly if they otherwise would have had to pay to refinance multiple times.
The bottom line
A HELOC could be one of the smartest ways to borrow money right now. Not only will the average homeowner have access to substantially more financing than alternatives can offer, but they can access it at a lower interest rate and reasonably expect that rate to fall even further as inflation dwindles. Plus, they'll save on refinancing closing costs that they otherwise would have had to pay if they went with the fixed-rate, home equity loan option instead. When considering borrowing home equity, however, it's critical to weigh the pros and cons as borrowers risk losing their homes if they can't pay back all that they've withdrawn.
