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In recent years, many factors, since sustained buyer demand has limited inventory for sale in most markets, have caused home equity levels increase significantly – and it seems this trend is not over yet. Home equity levels increased further in March, according to the May 2024 ICE Mortgage Monitor, leaving the average homeowner with approximately $208,000 in home equity.
Home Equity may be a wise option to consider if you are a homeowner who needs to borrow money at an affordable rate, whether to make necessary home renovations or repairs, consolidate debt or cover another major expense. And there are many ways to borrow against your home equity, including home equity loanswhich allows you to borrow a lump sum of cash, and Home Equity Lines of Credit (HELOC)which give you access to a line of credit that you can draw on if necessary.
And these are not the only reasons why home equity loan it might be wise to consider now. If you’re wondering why you should borrow against your home equity in today’s economy, there are a few things you need to know.
Find the best home equity rates you could qualify for here.
There are a few good reasons why you may want to tap into your home equity now, including:
THE Federal Reserve rate hikes over the past two years have impacted borrowing costs across the board, including home equity products. But even though today’s home equity loan and HELOC rates aren’t as low as they were at the height of the pandemic, they’re still well below the interest rates tied to many other home equity options. loan.
Right away, the average rate on a home equity loan is 9.66% while the average HELOC rate is 9.89%. This may not seem like much, but it could be compared to a personal loan. After all, the average personal loan rate hovers above 12% — so the sub-10% rate you can get on a home equity loan or HELOC could result in substantial savings over time.
And the same goes for credit cards. With the average credit card rate hovering closer to 22%, opting for a home equity loan or HELOC, even with a slightly higher-than-average rate, could mean paying significantly less interest in comparison.
So while you may not be able to get the ultra-low rates you might in 2021 or 2022, today’s home equity rates are still a pretty good deal compared to your other options .
Learn more about home equity loan options online now.
If you need to borrow a large amount of money, you may find that the limits on personal loans or credit cards are much lower than you expected. For example, the most you can typically borrow with a personal loan is around $100,000 – and very few lenders will let you borrow that much with this type of unsecured loan. It is much more common to see limits of $40,000 to $50,000.
And the average credit card limit is even lower than that. According to Experian, the average credit limit in the United States was $29,855 in Q3 2023, so these options may not make much sense when you need access to a high borrowing limit.
On the other hand, most home equity lenders allow you to borrow up to 85% or approximately the total equity in your home. Depending on how much equity you’ve built in your home, this could mean having access to tens or hundreds of thousands of dollars to borrow against. This can be helpful if you need to cover a large expense.
It is impossible to accurately predict what will happen to rates in the future. That said, we live in an unusual economic environment. Even though the current inflation rate is low compared to the peak of 9.1% which occurred in mid-2022, at 3.4%, it remains well above the Federal Reserve’s 2% target rate.
And, should inflation continue To impact the economy, it’s possible the Fed could raise rates again at some point in 2024 to try to bring it under control. And, if they did, home equity loan rates would almost certainly rise in tandem, making it more expensive to take out a home equity loan or HELOC.
So, if you need to borrow money, is it really wise to postpone it until later? After all, borrowing costs can rise dramatically with just a slight rise in interest rates, so waiting could be a gamble. But if you lock in a rate on a fixed home equity loan now you will be protected from the negative effects of future rate increases while still having access to the funds you need.
If you’re a homeowner, today’s high levels of home equity give you a way to borrow money at a low rate, which is a huge advantage in this high-rate environment. And tapping into your home equity could allow you to borrow significant amounts if you need to, especially compared to options like personal loans or credit cards. But if you’re considering borrowing against your home equity, you may want to move now. After all, it’s difficult to predict what might happen in the future, and if the Fed chooses to raise rates again to combat inflation, it could become much more costly.
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