with average amount of home equity near a record of about $330,000 now, homeowners have plenty of money to spend as they see fit. Do they use the funds to pay a marriagea college education or for consolidate high interest credit card debt, home equity often a smart way to do it. And this is one of the most expensive alternatives, now credit card interest rates are close to 23%, while personal loan rates are approaching 13%.
While there are several ways to tap into your home equity, from cash-out refinancing for reverse mortgagethe two more attractive options today are home equity loan and home equity lines of credit (HELOCs). Although both offer borrowers a low-cost way to get equity, they do not operate in the same way – and interest rate not identical, either. Going into November, then, when another cut to the federal funds rate is anticipated, which will be better to borrow? This is what we will discuss below.
See how low a home loan rate you can secure here.
Will a HELOC or home equity loan be better this November?
While the benefits of each of these home equity options depend on the individual borrower’s profile, there are some timely elements to account for this November. Here’s what to consider:
Why HELOCs could be better this November
If you are a borrower who has decided to take advantage of the lowest interest rates, then it is better to pursue a HELOC this November than a home equity loan – even if the latter has a slightly lower interest rate. Here’s why: HELOCs have variable interest rate that will change every month is the climate of the overall level of evolution. This is a distinct advantage this November and, likely, in the coming months as interest rate cuts continue to be issued.
So the 8.69% HELOC rate you open a line of credit with now could be lower in December, January and beyond. However, the home loan rate is 8.35%, it should be refinanced to secure future rate savings. And you have to pay refinancing costs to get that rate (often 1% to 5% of the total loan value). So, in short, if you want to be in the best position to calculate future interest rates, a HELOC could be better for you this November.
Start a HELOC today.
Why home equity loans can get better this November
If waiting for rates to be cut – and there’s no guarantee that they will or by how much – is too risky for your financial situation, then a home loan could be better this November. These loans come with slightly lower interest rates than HELOCs, which may seem marginal on paper but can add up to big savings over a 10- or 15-year repayment period.
But they will also protect you from future interest rate volatility, making monthly payments in December and easier on your budget. And if rates drop by a significant amount in the winter or spring of 2025, you can continue making your repayments — while still getting access to the low-interest financing you need this fall.
Bottom line
Choosing between a HELOC or a home equity loan this November is a personal choice, largely dependent on your financial situation and appetite for rate volatility. It doesn’t matter which option you end up choosing, make sure you only withdraw the amount of equity you can afford to pay back. With today’s average amount of home equity, it can be tempting to overborrow. But this would be a mistake because your home is collateral in this loan exchange and you could lose it if you can’t pay back everything you have withdrawn.
Have more questions about home equity loan options this November? Learn more here.