3 timely HELOC myths homeowners should know now
When it comes to borrowing from your home equity, you have a variety of options to choose from.
From reverse mortgages for seniors to cash-out refinancing to home equity loans, there are multiple ways to tap into your equity now. But only one — home equity lines of credit (HELOCs) — allows you to take advantage of a cooling rate climate. That's because rates on these products are variable and positioned to change monthly depending on what's occurring in the broader economy. And with multiple rate cuts issued this year and another likely for the Federal Reserve's final 2024 meeting, many borrowers may understandably be turning to this option now.
Still, there are some important caveats to keep in mind right now, especially when borrowing from a critical asset like your home. This extends to knowing the truth about some misleading concepts. Below, we'll break down three timely HELOC myths homeowners considering should be aware of now.
Start by seeing what HELOC interest rate you'd qualify for here.
3 timely HELOC myths homeowners should know now
Not sure if now is the right time to secure a HELOC? These common but timely myths can help answer that question:
The rate will continue to fall
This isn't a total myth but it's not completely factual either. No one knows for sure if HELOC interest rates will continue to decline — as they've done all year — or if they'll be static or even rise. Inflation, after all, just rose in October. Additional increases there will almost assuredly cause interest rates to tick up again.
But even if the rate does continue to fall, it doesn't mean that borrowers should delay acting. HELOC rates adjust independently each month. So if rates fall in December or January, for example, borrowers will automatically be positioned to take advantage. If they rise, though, it could become expensive. It's worth weighing these scenarios then, with the understanding that rates may or may not continue to fall.
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Home values will continue to rise
The average amount of home equity is high right now — just under $330,000. And home prices are continuing to rise in many parts of the country, meaning that you may have more home equity to work with in the future if you delay acting. But the key word there is "may."
While not precisely a myth, it's misleading to assume that home values will continue to rise. And even if they do, they're unlikely to grow so dramatically that it will have been worth applying for the financing you already need. Any number of factors could cause home values to drop. So account for this real possibility to best determine your next course of action.
Applying now will secure a tax deduction
Interest paid on HELOCs is tax-deductible if used for qualifying home repairs and projects. But applying now, in the waning weeks of 2024, is only the first step. If you want to deduct the interest you paid on the line of credit when you file your return in the spring, then you will need to apply — and use the HELOC — sometime between now and January 1, 2025. If you don't and decide to use it for qualifying purposes in 2025, you'll still you'll need to wait until you file your next return in 2026 to benefit. Time your usage, then, accordingly.
The bottom line
The right time to open a HELOC could be now for many homeowners. Others, however, may benefit by waiting. By understanding the above myths, each type of borrower can better determine when to act. It's critical, however, to weigh all home equity borrowing options carefully as your home serves as collateral when you borrow from it, inherently risking your homeownership if you fail to repay all that you've withdrawn.
