Home equity loans vs. HELOCs: Which will be better in 2024?
Inflation and interest rates were high in 2023, giving many borrowers pause. But while rates were elevated for items like mortgages, personal loans and credit cards, they remained relatively low for home equity borrowing. Whether you elected to use a home equity loan or a home equity line of credit (HELOC), you likely still paid less than you would have if you pursued a credit card with a 20% interest rate, for example.
But a new year brings new considerations for borrowers, and many may now wonder which of these two home equity options is better in 2024. As is the case with many financial considerations, determining which is truly "better" is personal.
That said, there are some factors to account for to determine which option is preferable for your unique situation.
Start by exploring your home equity options here to learn more.
Home equity loans vs. HELOCs: Which will be better in 2024?
It's not a great idea to automatically rule out either home borrowing option. Instead, do your research and understand the following considerations.
When a home equity loan will be better in 2024
A home equity loan could be better for you this year if you know exactly how much you need to borrow. Since these loans are delivered in a fixed sum, they're generally advisable for those borrowers who have a defined goal in mind. They could also be better for those with limited flexibility as the rates are locked at the time of application approval.
HELOC rates, on the other hand, are variable and subject to change monthly. With the potential for rate changes likely at this point in the year, that could cause instability in your budget when the rate changes each month. Instead, many borrowers may be safer locking in a home equity loan at today's rate and refinancing it in the future when the market stabilizes.
Explore your home equity loan options here now.
When a HELOC will be better in 2024
A HELOC, on the other hand, could be better for you this year if you know that you need the extra funds but aren't sure exactly how much you'll need. Since HELOCs act like a revolving line of credit, this can be particularly helpful for those whose financial needs may rise and fall quickly.
Plus, you'll only have to pay interest on the amount you use — not the full amount you were approved for. This can be a major advantage in 2024 for those looking to limit how much they have to pay in tax expenses.
Other considerations
No matter which option you choose, both home equity loans and HELOCs come with attractive tax benefits. Specifically, borrowers will be allowed to deduct the interest they paid on either option in the year they used it "if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS explains online.
That, combined with the lower interest rate compared to other popular credit options, can make home equity borrowing valuable no matter which avenue you choose.
That noted, be careful with how much you deduct and what you ultimately use the money for. You should typically have a clear plan in place for using these funds and a firm way to repay what you borrowed. Since your home is the collateral in these instances, you could risk losing it if you're unable to pay your home equity loan or HELOC back to the lender.
The bottom line
Both home equity loans and HELOCs have unique financial advantages, particularly now as the economy continues to work its way past inflation. The benefits of one option, however, may not be as appealing as those for another so it's important to do your research and throroughly compare products and lenders before acting. And remember, you don't need to use the same bank that you currently have your mortgage with. So feel free to shop around for the best deal. Get started here today.
