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Timing is everything, but when borrowing money, it’s even more important. And when the funding source is your home, it’s even more critical to make the right decision. After all, failure to repay a home equity loan or home equity line of credit (HELOC) can result in foreclosure on the property in question. Fortunately, this April marks an opportune time to tap into your home equityespecially considering that a recent report showed levels in the country sitting at $11 trillion. So there’s plenty of money to leverage right now, even while maintaining the 20% equity threshold most lenders will mandate borrowers to preserve.
But that’s not the only reason why this April could be a good time to open a HELOC. There are actually multiple advantages to taking action now. Below, we’ll break down three timely benefits of opening a HELOC that homeowners should understand.
Start by seeing how much home equity you could borrow with a HELOC here.
3 benefits of opening a HELOC this April
Not sure if a HELOC makes sense this month (and in the months that follow)? Here are three reasons why it could be your best borrowing tool right now:
It’s one of the most affordable ways to borrow money this month
A quick glance at interest rates shows that a HELOC isn’t just your most affordable way to borrow home equity this month. It’s also one of the most affordable ways to borrow money overall. Case in point: Home equity loans come with average rates between 7.85% and 8.00%, personal loans have rates over 12% and credit cards have rates still over 20%.
A HELOC rate, meanwhile, is closing in on the 6% range and sits at just 7.04% right now. That’s not just a difference in rates; however, it represents real, tangible savings each month for homeowners that they’ll continue to realize as long as the product’s variable rate continues to decline, just as it has routinely over the past 18 months.
See how low your HELOC rate offers are now.
It has tax advantages if used for select spring home projects
Need funding for select home projectsimprovements, and renovations this spring? Then a HELOC may be the best option to explore now. If used for certain projects such as kitchen renovations or bathroom remodels, the interest paid on the HELOC may be tax-deductible.
That makes concerns over today’s interest rates even less pressing if borrowers know that they can reduce their tax bill next spring. Just be sure to understand which projects qualify and which ones won’t before getting started. A tax advisor or home equity lender can help you best determine eligibility.
You’ll position yourself for interest rate drops ahead
Because a HELOC has a variable interest rate that changes based on market conditions, existing borrowers have been able to save substantial sums in recent years as interest rates cooled. And they didn’t need to refinance or pay for refinancing closing costs, as the HELOC rate adjusts independently each month.
By acting now, then, prospective borrowers can position themselves for interest rate drops still to come. And while the potential for a new Federal Reserve rate cut looks low currently, HELOCs continually fell this year, even with the Fed keeping rates paused, as rates are driven by multiple factors. So it can still be a cost-effective way to borrow, as long as you account for some variability here that could cause rates to rise and fall each month.
The bottom line
With a HELOC now serving as one of the cheapest ways to borrow money (not just home equity), this April could be the smart time to borrow with this tool. Add in the tax deduction features that are unique to home equity borrowing options and the inherent potential for rates to drop and savings to increase in the future, and this becomes a truly powerful tool for homeowners in need of extra funding this month. Just be sure to limit your borrowing to an amount you can easily afford to repay and account for rate changes in advance to better ensure long-term affordability in a variety of economic situations.