The best times to get a home equity loan
Timing is everything, particularly when it comes to personal finances. In today's economic climate plagued by inflation and high interest rates, the timing hasn't been great for many types of financial decisions. Consumers need to be judicious about how they spend their money and how they use their existing credit options.
One option homeowners may want to pursue today is the equity they've built up over the years. This can take many forms, from cash-out refinancing to home equity lines of credit (HELOCs) to home equity loans.
Home equity loans, in particular, may be favorable for many homeowners, assuming they're used at the right times for the right reasons. But when are those times, exactly? That's what we will discuss below.
If you think a home equity loan could be helpful for your financial situation then start exploring your options here now.
The best times to get a home equity loan
Here are three of the best times to take out a home equity loan.
When home values are high
Interest rate hikes have hurt home values in certain parts of the country, while other parts have remained unaffected and some have even seen prices rise. If you live in one of the latter parts of the country then it makes sense to get a home equity loan now, as you'll be able to secure significantly more money than if you wait for your home value to drop.
Remember: Home equity isn't just determined by how much you've paid toward your mortgage balance. It's also determined by how much your home value has risen since you first purchased your home. So if you purchased your home for $500,000 and paid off $100,000 of the principle you'd have $100,000 equity. But if your home value has since risen to $650,000 you'd have a total of $250,000 to deduct ($100,000 of payments plus $150,000 in home value).
Explore your home equity loan options here now to see how much you could get.
When you need funding for home repairs and improvements
Arguably the best thing you can use a home equity loan for? Home repairs and improvements. That's because the interest on these types of loans may be tax deductible if used for IRS-approved reasons.
"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.
"Generally, you can deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a," the IRS says. "However, any interest showing in box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by the property, is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home."
When your alternative is credit cards or personal loans
The benefits of a home equity loan are specific to the individual and property in question. That said, it could be favorable if the alternative is to use credit cards or personal loans to pay for expenses or to make ends meet. In that case, it's generally advisable for homeowners to use a home equity loan, instead. Interest rates on credit cards currently hover around 20%. Personal loans are better but still may fall in the double-digit range. Home equity loan interest rates, meanwhile, can be around 7% to 8% or better, depending on the borrower's credit score and history.
While these rates are favorable in and of themselves, they could also be a smart way to consolidate higher interest debt, too.
Explore your home equity loan options here now to learn more.
The bottom line
There are good times and bad times to use financial products and services. Home equity loans are no different. To get the most value out of this sort of credit, homeowners may want to act when their home value is high and they can withdraw a substantial sum of money. They also may find it useful to use to make home repairs and improvements (due to its interest tax deduction) or when they're saddled with high interest debt like credit cards or personal loans.
