Does a HELOC make sense with inflation rising again? What experts say
Borrowing against the equity in your home has long been an affordable way to access funds. However, home equity loans and home equity lines of credit (HELOCs) became more expensive over the past several years as inflation surged in the post-pandemic era.
As inflation began to cool in 2024, those hoping to get a loan against their equity saw signs of potential relief in the interest rate forecast. Unfortunately, this was short-lived as inflation began to tick back up and home equity and HELOC loan rates once again began to climb.
With inflation rising slightly in October, many homeowners are left wondering if a HELOC makes sense during these turbulent economic times -- especially since, unlike a home equity loan, HELOCs have variable interest rates.
To help you decide if a HELOC could be the right choice, we asked experts to weigh in about this borrowing method under current economic conditions.
See what HELOC interest rate you could qualify for here now.
Does a HELOC make sense with inflation rising again?
The good news for would-be borrowers is that most experts believe HELOCs are still a good choice right now -- even though rates remain elevated above the recent historic norms that persisted between the end of the 2008 recession and the start of the post-COVID era.
"The equity gained in your home can be a useful asset in serving your short or long-term financial goals," according to Fred Bolstad, head of retail home lending at U.S. Bank. This equity acts as collateral for your HELOC, reducing the risk to lenders of providing you with a loan, thus opening the door to one of the most affordable borrowing options available.
"Rates on HELOCs are still lower than alternatives like personal loans or credit cards," explains Aaron Craig, VP of Mortgage and Indirect Sales for Georgia's Own Credit Union. Craig also notes that depending on what you're using the funds for, your HELOC interest could potentially be tax deductible, which significantly reduces borrowing costs.
Sarah Alvarez, Vice President of Mortgage Banking at William Raveis Mortgage, also believes HELOCs are a great borrowing option now, and one that could even become more affordable in the coming year.
"HELOC rates are directly tied to the Federal Funds rate and, as such, are expected to decline or at the very least, remain stable through the end of 2025," Alvarez said. "They are still a very useful tool for being able to tap additional equity in a property while protecting a great first mortgage rate."
However, while Keith Heritage, financial advisor and managing partner at Heritage Financial, agrees that "a HELOC often makes sense despite what inflation rates might be," Heritage suggests that you look for one with minimal fees and "make sure to shop around for one that fits your goals and needs."
Start shopping for HELOCs online today.
Rising inflation could create problems for HELOC borrowers
While most experts say HELOCs remain a viable -- and even advantageous -- borrowing choice, this doesn't mean there are no downsides or risks.
"Rising inflation will make it tough for the Fed Funds rate to continue to be lowered, which is not great news if you have a home equity line of credit with a variable rate that could potentially go up," Craig says. "However, there's no guarantee that rates would automatically go up with rising inflation, as they could stay stagnant, and at some point lower once inflation is under control."
Craig recommends considering a fixed-rate home equity loan if the variable rate of a HELOC causes you concern, as you could lock in your home equity rate for the life of the loan if you chose this alternative.
If you do opt for a HELOC, though, Heritage recommends shopping around to get the best rates, as some banks offer more favorable loan terms than others. With the potential for HELOC rates to climb, finding a loan with the lowest starting rate can help you keep your borrowing costs affordable over time.
