Should you open a home equity loan this October?
The first interest rate cut in more than four years was issued in September and inflation data released in the month showed yet another drop in the rate. While that's encouraging news, the economic burdens millions of Americans have endured in recent years are unlikely to resolve themselves overnight – or even over a few months. Credit card debt is high and delinquencies are rising. And the costs of everyday expenses, while dropping, are not quite where many would like them to be.
Against this backdrop, many are looking for ways to make ends meet. One effective way to do this is by opening a home equity loan. Home equity loans have some unique advantages in today's evolving economic climate and they come with the security that other, more volatile borrowing options simply do not. But your home does serve as collateral in these borrowing circumstances, so it's important to carefully consider this option before acting. Below, we'll detail three reasons why you should consider opening a home equity loan this October.
Start exploring the rates you could get on a home equity loan here.
Should you open a home equity loan this October?
Not sure if a home equity loan makes sense for your financial situation now? Here are three features that can help make the case:
A lower interest rate than most alternatives
Before locking in a home equity loan rate it makes sense to compare your current alternatives. Unfortunately, right now, the rates on many other products are simply too high. Credit cards are hovering near a record 23% right now. Personal loan rates are much better but are still close to 13% now. And home equity lines of credit (HELOCs) are lower than those two (8.94%) but they come with a variable rate that changes monthly. Compared to these alternatives, then, the average 8.39% home equity loan rate becomes the clear best (and cheapest) choice.
See what home equity loan rate you'd be eligible for now.
A way to access large sums of money
It may be difficult to get a large personal loan as they're often capped at close to $100,000. Credit cards, meanwhile, come with their own restricted credit lines that you will need to ask a lender to increase if you need access to a large sum. But, right now, the average amount of home equity is high.
How high? About $327,000, to be exact. And while most lenders will only let borrowers take out 80% of that money, it still equates to $214,000 to use. Compare that to the highest-limit credit card you currently have and it again becomes clear that a home equity loan is your best borrowing choice this October.
A fixed-rate amid market uncertainty
The first interest rate cut in more than four years is not even a month old. Other cuts could be coming in November and December, all of which will affect borrowing products and the larger rate climate, but none of which have had a chance to echo throughout the market quite yet. Combined with geopolitical concerns abroad, a U.S. presidential election barely a month away and more, the economy is uncertain right now.
It makes sense, then, to skip variable-rate borrowing products like HELOCs and credit cards and instead pursue a fixed-rate option like a home equity loan. This will allow you to budget with certainty and without surprises. And, if rates on home equity loans drop significantly in the future, you could simply refinance at that point.
The bottom line
Borrowing money is a personal decision with personal consequences, especially when you're using your home as the financing source. That said, this October could be a smart time to open a home equity loan. With a lower interest rate than most popular alternatives, the inherent ability to access large sums of money (on average) and a fixed-rate product amid market uncertainty, this product offers unique and timely benefits for borrowers right now. Still, it makes sense to take a strategic approach when using your home equity as the money comes directly from one of your most important investments, so only borrow an amount that you can easily afford to pay back.
