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CBS News
07-04-2025
- Business
- CBS News
Why you should shop for home equity loans and HELOCs this April, according to experts
Americans continue to fight an uphill battle with economic forces outside their control. Inflation is beyond its target , increasing the cost of goods and total expenses. Interest rates remain steady to help tame said inflation. Now, more price hikes might be in the future due to new tariffs. These and the other economic factors that are looming can have a direct impact on your wallet. Because of this, consumers need to take advantage of the financial tools and resources available to them. For homeowners, that can mean utilizing home equity borrowing options. Home equity loans and home equity lines of credit (HELOCs) provide access to capital with more favorable terms than other alternatives. And, right now could be a good time to shop around and review your options with multiple home equity lenders. Here's why. Find out how low your home equity borrowing rate could be now . We spoke to home lending experts about why you should shop for home equity loans and HELOCs this April. Here's what they have to say: What the Federal Reserve does with the federal funds rates tends to affect the cost of borrowing. While everyone is holding their breath and hoping for rate cuts in the future, the Federal Reserve left rates unchanged after the March meeting. There isn't a Federal Reserve meeting scheduled for April, which means there's no decision pending by the Fed that could impact rates this month. So, while that means there won't be any cuts, there won't be any increases, either. This can make it a good time to look into home equity loans and HELOCs. Compare your top home equity borrowing options online today . Whenever you borrow, the interest rate is a major factor to consider. Now, taking out a home equity line of credit just got more affordable. HELOC interest rates dipped below 8% for the first time since 2023. Before this major milestone , HELOC rates were on a small but steady downward trajectory . HELOC interest rates are typically variable, so if the trend continues, you can still benefit. "The direction that the market's heading…the expectation is that those numbers are going to decrease and there's going to be some opportunities to potentially take advantage of lower home equity lines of credit [rates]," says Jason Lerner, branch manager at First Home Mortgage. More than half (54%) of mortgages have rates of 4% or lower, according to Q4 2024 data from . Homeowners who secured such low rates are holding on to a good thing. "They're locked in and they're sitting on those record low mortgage rates of the two to four range. We don't expect these rates to come again," says Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. That can make options like a cash-out refinance less appealing, as you replace your existing mortgage and therefore lose your low mortgage rate. Home equity borrowing options like HELOCs or home equity loans can keep your low mortgage rates intact. "It's a way to leverage and take some of the equity in your home to use for home improvement purposes or debt consolidation without jeopardizing your very low rate," says Mark Worthington, a loan officer and branch manager at Churchill Mortgage. Springtime is often considered the prime home-buying season . But it's also a great time for home renovations. "I will say that April, in general…kicks off the renovation season as well. So, weather is finally, in most parts of the country, warmer and many homeowners start planning big projects," says Evangelou. The warmer weather and extra hours of daylight provide ideal conditions for renovating. Whether you want to build an outdoor deck or renovate your kitchen or bathroom, now is a good time to do that. Using home equity borrowing options can help you finance those renovation projects. When you take out a home equity loan or a home equity line of credit, you retain your current mortgage rate, and the interest rates on these financing tools are often lower than other borrowing options. Credit card interest rates exceed 22% on average right now, making them a costly choice. If you're in credit card debt, tapping your home equity can be a smart move to consolidate your debt at a lower rate. HELOCs, in particular, offer borrowers a ton of flexibility in how much they can borrow and when. "With a home equity line of credit, you can re-leverage the money. With a home equity loan, you can't. Once it's leveraged and dispersed to you, even if you pay it off to have that money back again, you need to get a new loan. That makes the flexibility of a home equity line of credit much greater," says Worthington. If you're looking to consolidate debt or make some home upgrades, home equity borrowing can help. Review your home equity amount and look into both home equity loan requirements and HELOC requirements to see if you qualify. However, it's important to be smart about borrowing. "Think of your equity as a financial tool that can help you, but it's not like a piggy bank," says Evangelou. Make sure to calculate your repayment costs with each product and shop around with multiple home equity or HELOC lenders. Lerner suggests a home equity loan for people who need an extended repayment period and who benefit from a fixed rate and repayment schedule. That's a major difference to consider. Home equity loan interest rates are generally fixed, while HELOC interest rates are typically variable. For consumers who want assistance with cash flow in today's economy, Lerner says, "Home equity lines of credit can be a great solution as long as they're managed appropriately with the end goal of ultimately paying them off."
CBS News
19-03-2025
- Business
- CBS News
4 borrowers who should open a HELOC (and 3 who shouldn't)
In today's high-rate and high home equity environment, home equity borrowing has become a popular option. Whether for debt consolidation, home renovations and repairs, or other short-term expenses, borrowing your home equity can be more beneficial than other alternatives. Home equity borrowing can come in different forms, ranging from lump sum home equity loans to home equity lines of credit (HELOCs) to cash-out refinancing . But HELOCs, in particular, are in demand as they offer more flexibility with borrowing and repayment. As a borrowing product, a HELOC can offer a lot of benefits. However, it's not a good fit for everyone. We spoke with home lending experts about who should and shouldn't open a HELOC right now. Below, we'll break down what to know. Start by seeing how low of a HELOC interest rate you'd be eligible for here . Homeowners have a unique opportunity to secure financing through a home equity line of credit. Instead of turning to high-interest loan products, they can tap the equity in their home. "So many homeowners have equity because of the sharp appreciation of values we've experienced over the last five years," says Jason Lerner, branch manager at First Home Mortgage. Here are some situations when it can make sense to look into HELOC borrowing : Americans collectively owed $1.21 trillion in credit card debt as of December 2024, according to data from the Federal Reserve Bank of New York . Credit card interest rates are also sky-high, currently north of 20% . If you're knee-deep in credit card debt and struggling to pay it back because of the accumulated interest, a HELOC can be a powerful tool for debt consolidation. Average home equity line of credit interest rates are dropping and are currently 8.04% on a $30,000 HELOC, according to Bankrate . Being able to pay off high-interest debt and potentially cut your interest rate in half with a HELOC can be a smart move. Get started with a HELOC now . Lerner notes that a HELOC could make sense for homeowners or real estate professionals looking to renovate their home or invest in other properties. "If someone knows that they're going to take on this extra debt but they're going to get a significant return on their investment…where they know they're going to put $10,000 or $20,000 into the home and get an increase in value of $40,000 or 50,000," says Lerner, a HELOC could be a smart financial move. "Another really good candidate for a HELOC is somebody that owns their home and they've been in it for a while or maybe they purchased a home that just needs some upgrading, some sprucing up or some maintenance and repair," says Mark Worthington, a loan officer and branch manager at Churchill Mortgage. Home equity borrowing is convenient for homeowners who might need some extra cash. But it's still money you have to pay back. As with any type of loan, being in a good financial position can make you a solid candidate for a HELOC. "A HELOC is best for responsible borrowers with strong credit, a solid debt-to-income ratio, and sufficient home equity. It's a smart option for homeowners who need access to capital but want to avoid the high interest rates of credit cards or the hassle of refinancing," says Dr. Sean Wilkoff, an assistant professor of finance at the University of Nevada, Reno. A home equity line of credit has a draw period and a repayment period . In some cases, the draw period could be 10 years and the repayment period could be up to 20 years. While that might sound beneficial, you could be in debt for a long time. You also can't see into the future and know where you'll be financially in a decade. Because of that, Lerner says that borrowers who are dealing with a short-term expense and planning to repay the HELOC quickly could be good candidates for this type of financing. A HELOC is a flexible financing tool, making it an attractive option for borrowing. However, not everyone is a good fit for a HELOC. Here are some examples of borrowers who should likely reconsider a HELOC: Inflation is affecting everyone's budget. But borrowers who don't have any breathing room in their budget or are already overextended with payment obligations shouldn't open a HELOC. "If you're unable to comfortably repay the borrowed amount, it can quickly become a financial burden. Borrowers who wouldn't feel secure putting the expense on a credit card should think twice before using their home as collateral. Additionally, if covering the closing costs is a stretch or you don't fully understand how variable interest rates work, a HELOC may not be the right choice," says Wilkoff. Home equity line of credit interest rates are generally variable. That means your rate can go up or down depending on economic conditions and what's happening with the prime rate. If you have concerns about a variable rate or your payments changing, a HELOC might not be the best tool. However, some lenders do offer a fixed-rate option . On the other hand, most home equity loan interest rates are fixed , which can help with budgeting as payments stay the same. Debt consolidation is one of the best ways to use a HELOC. But Worthington notes it's only a good idea if you've changed your financial habits and circumstances that led to the debt in the first place. "I caution when we use a HELOC for debt consolidation. It is a lower interest rate than you can get on virtually every other kind of debt, particularly consumer debt when it's related to credit cards. However, there's often a cycle," says Worthington. Until you've addressed the root cause, borrowing more could potentially keep you in a debt cycle that's tough to climb out of. A HELOC can be a useful tool in a variety of situations, but it's not for everyone. If you're in a solid financial position and clear on how a HELOC will help you, Worthington suggests speaking to more than one financial institution to compare options. To review rates and terms, you can check HELOC options from home lenders and financial institutions. While it's important to have a clear vision of how you'll use the funds, it's even more important to know how you plan to repay what you borrow. "I definitely would say to have a plan for repayment for anyone who opens up a HELOC," says Lerner. Learn more about borrowing with a HELOC here .
