Is now still a good time to use home equity?
Following months of encouraging signs that inflation was cooling, it actually ticked up again in July and one more time in August, giving many experts pause. With the benchmark interest rate at a range of 5.25% to 5.50% — and kept there after the Federal Reserve left rates paused in September — borrowers don't have many good alternatives right now.
The costs of borrowing for everything from mortgages and mortgage refinancing to personal loans and credit cards are higher than they've been in years. In many cases, borrowers will secure a higher rate now than they already have on their existing debt, leaving many stuck in their current predicaments.
But what about home equity? By using a home equity loan or home equity line of credit (HELOC), homeowners can withdraw the equity they've accumulated to pay for major expenses, repairs or renovations. So is now still a good time to use home equity — or are owners better off exploring their alternatives?
Explore your home equity loan options here to see what you're eligible to borrow.
Is now still a good time to use home equity?
While rates on home equity loans and HELOCs haven't escaped today's inflationary environment, they can still be viable and beneficial options for many borrowers. Here are three reasons why it could still be a good time to use home equity:
Rates are lower than popular alternatives
The average home equity loan rate was 8.71% as of October 5 while the average HELOC rate was slightly higher at 9%. While that's not as low as what could've been secured in the spring, when stacked up against personal loans (many of which have double-digit interest rates) and credit cards (which are now around 20% or higher), it's clear that a home equity loan is still worth it. That said, it may make sense to act quickly, particularly before the next Fed meeting, as another tick up to the benchmark interest rate could move home equity loans into the double-digit range, too.
Get started with a top home equity loan here today.
You may be able to deduct the interest from your taxes
The interest you'll have to pay when you use a credit card or personal loan will be yours until it's paid off in full. But that's not always the case with home equity loans or HELOCs. If you use the funds you withdrew for eligible purposes, the interest accrued may be tax-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 explains online. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
You may have a lot of equity to borrow
Home equity is calculated by deducting the amount of money you still owe on your mortgage balance from the appraised home value at the time of application. And, right now, home values are high in many parts of the country. In fact, the average homeowner has around $200,000 worth of usable equity in their homes now. That's a lot of potential cash to utilize and with a HELOC you'll only have to pay interest on what you actually used — not the full amount you were approved to borrow.
Learn more about your home equity loan and HELOC options here today.
The bottom line
The timing behind financial considerations is a personal one but, for many homeowners, now can still be a good time to take advantage of their existing home equity. Home equity loans and HELOCs still currently have lower interest rates than many popular credit options. And, if they use it for qualifying purposes, homeowners may be able to deduct the interest they paid from their taxes in the spring. Plus, in today's limited real estate market, many homeowners have significant sums of cash to access in their homes now.
