3 reasons to use home equity this October
When it comes to making the right financial decision, timing is everything. If you don't get the timing right, you could wind up hurting your bottom line and find yourself stuck paying for items you don't need and can't use. But, if you get the timing right, as many homebuyers who purchased a home in 2020 and 2021 can attest, the benefits can last for years — if not decades.
For most of 2023, it's been a great time for owners to utilize the equity they've built up in their homes. But, as the rate environment has changed, the advantages of utilizing this unique form of credit have narrowed. While still advantageous for wide swaths of the homeowner population, the major benefits of using a home equity loan or home equity line of credit (HELOC) may soon be closing. As such, there are compelling reasons why owners should use their home equity this October.
Start by exploring your home equity loan options here to see what you're eligible to borrow.
3 reasons to use home equity this October
Here are three reasons why homeowners should strongly consider using their home equity this month.
Rates are still low
Compared to the interest rates that qualified borrowers can get with personal loans and credit cards, those for home equity borrowing are significantly better. Many personal loan interest rates are in the double digits, and interest on credit cards has skyrocketed this year, with interest rates frequently over 20%. But home equity loan and HELOC rates are averaging 9% or lower right now. While that's still higher than what could have been found earlier in the year, it's still very competitive when compared to the more popular alternatives.
Learn more about your home equity options here.
Rates may rise soon
The Federal Reserve is slated to meet again on October 31 with an announcement on the future of rate hikes expected for the following day. And with many expecting yet another bump to the benchmark interest rate this year, it's possible that it could be announced after the meeting has concluded.
Rates were untouched in September, but most don't expect them to stay there for the rest of 2023. A rate bump in November, then, would raise the costs of home equity borrowing as well. So it makes sense to start the application process now when you can still lock in a low rate.
You still have time to deduct it from your taxes
The interest on home equity loans and HELOCs is tax-deductible if used for IRS-approved projects. "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," according to the IRS. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
This means that if you use this form of credit this year for these purposes, you'll still have time to deduct the interest paid when you file your taxes in the spring. If you wait until January, however, you'll lose that tax deduction for this year and will have to wait until 2025 to utilize it.
The bottom line
While earlier in 2023 may have been an optimal time for homeowners to tap into their home equity, this October can still be beneficial, especially when considering the average $200,000 of equity owners currently have available. By acting today, homeowners can secure a lower rate before they inevitably rise in the final months of 2023. And they'll get in under the wire, allowing them to deduct the interest they paid on the loan for qualifying purposes in the spring.
Does a home equity loan or HELOC sound beneficial for you now? Learn more here now.
