Why homeowners should get a HELOC this July
July is closing in quickly. And while temperatures continue to heat up, you may be looking for ways to access low-cost funding. That's especially true if your air conditioning unit is beginning to fail, you notice a leaky roof during summer storms, or you otherwise need access to a meaningful amount of money.
A home equity line of credit (HELOC) may be the solution to your low-cost funding needs.
HELOCs are credit lines that offer several benefits. With your home being the security that backs these products, they usually come with competitive interest rates. And, those rates are usually variable, which could be a positive attribute in today's interest rate environment.
Plus, if you're the average American homeowner, you may have quite a bit of equity available. But, those aren't the only reasons to open a HELOC this July. Below, we'll break down three important ones to know now.
Why homeowners should get a HELOC this July
HELOCs give you a way to tap into your equity while paying competitive interest rates on what you borrow. Here are a few reasons this July is a compelling time to take advantage of these financial products:
You may qualify for more equity if you act quickly
"July is one of the best times to consider a HELOC because you can maximize the amount you may qualify for," explains Darren Tooley, senior loan officer at Cornerstone Financial Services, a financial planning firm.
That has to do with when consumers typically shop for homes.
"The summer months are the peak of the homebuying season, and timing your HELOC during this period can increase the amount you may qualify for," says Tooley. "The additional closings and homes under contract during this period generally increase home values across the board, and this is one of the critical items determining how much you can typically qualify for."
Get access to the funding you need with a HELOC now.
You may enjoy tax incentives
The need for home repairs can become obvious in July. Maybe your HVAC unit is having a hard time keeping up with the heat or a summer storm has led to a pool of water in your living room thanks to a leaky roof.
No matter what part of your home needs to be repaired, a HELOC can help you fund the project. And you may enjoy tax incentives, too.
"HELOC interest for home renovations can be tax-deductible," explains Dutch Mendenhall, CEO of RADD Companies, a conglomerate of financial services companies.
In most cases, you'll be able to write the interest you pay on your HELOC off as long as you use the money from the credit line to repair or otherwise substantially improve your home. But, be sure to repair the home you borrow the money against or you may exclude yourself from these tax incentives. For example, you may not qualify for this incentive if you borrow money against your primary home to improve your vacation home.
Interest rates may start to fall soon
The Federal Reserve plays a role in the movement of consumer interest rates by changing its federal funds rate. And, the changes the Fed makes to that benchmark rate are typically in response to inflation data.
If inflation is too high, the Fed usually aims to constrict spending by increasing interest rates (and, in turn, borrowing costs). This can limit demand, leading to slowing price growth. But, when inflation is too low, the Fed may look to spur spending with interest rate cuts.
With inflation predicted to decrease and potential fed rate cuts ahead, Mendenhall says July may be a good time to get a HELOC.
According to the most recent inflation report, price growth is cooling in the United States. So, lower interest rates may be on the horizon. The interest rate on a HELOC is usually a variable one. So, if slowing inflation results in lower consumer interest rates, your interest rate on your HELOC may fall, too, cutting your cost of borrowing.
You can cover ongoing expenses with a HELOC
Whether you're interested in using a HELOC to pay for home repairs this July or to cover a number of other summertime costs, you may not immediately know how much money you need. But, that's OK.
"If you foresee ongoing financial needs and crave the freedom to grab funds whenever, a HELOC could be your go-to," says Mendenhall. A HELOC is a line of credit that you'll typically be able to tap into for several years in what's known as the draw period. You can even repay what you borrow and tap into your equity again if needed during this period.
There are other benefits to a HELOC's draw period, too. In particular, you'll usually only have to pay interest on the balance you've accumulated during this period. Payments on your principal balance usually won't be required until your repayment period begins.
Enjoy funding flexibility with a HELOC today.
The bottom line
If you need access to funding this July, a HELOC is an option that's worth consideration. You may qualify for more funding in the summer months than you would during other times of the year. And, with inflation cooling and the prospect of lower interest rates ahead, a HELOC's variable interest rate could be a welcomed feature. If you're using the funding to make home repairs, these lines of credit come with tax incentives. Plus, as lines of credit, these financial products give you flexible access to funding.
