Rising Home Equity and Why Now Might Be a Good Time for a HELOC
Did you know that if you’re a homeowner, you might have access to tens of thousands of dollars (or even more) just because of your home? A Home Equity Line of Credit, or HELOC, allows you to tap into that credit for home improvements, emergency repairs and virtually anything that may require borrowing money.
According to AARP, now might be the best time to tap into that equity. With home prices up 20% since February 2021, according to property analytics firm CoreLogic (and as much as 29.1% in warmer climates), you may have more equity to borrow against than ever before.
Meanwhile, inflation is seeing 40 year highs and the Fed is planning another interest rate hike, which means now may be the best time to borrow money.
What Is a HELOC?
A home equity line of credit allows you to open a line of credit so you can borrow against your home’s equity, typically up to 80% percent of your home’s value. You can open the line of credit at any time, and only use it when you need it. You then pay it back with interest-only payments for a time, with the balance coming due in 10 or 20 years.
The Difference Between Home Equity Loan and a HELOC
If you think a HELOC sounds a lot like a home equity loan, you’re not entirely wrong. However, a home equity loan delivers a lump sum of cash, which you begin paying back with principle and interest payments immediately. With a HELOC, you don’t take the cash until you need it.
Also, a home equity loan is usually a fixed rate loan, while a HELOC is variable.
Why You Would Take Out a HELOC
It’s a good idea to take out a HELOC if you can and leave that money sitting, in case you need it. With the stock market down, it’s not the best time to pull from investments if you need cash in an emergency.
However, you don’t want to make the decision to open a HELOC lightly. With interest rates rising, the cost of borrowing money could become cost prohibitive. Plus, you have to remember that if you borrow against your home and can’t make the payments, you could be putting your house at risk of foreclosure.
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