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There are always ways to borrow money, some more cost-effective than others. But in recent years, only one has remained relatively cheap: home equity. As inflation soared and rates on credit cards and personal loans surged alongside it, home equity loans and home equity lines of credit (HELOCs) remained relatively inexpensive. While not immune from this rising trend, they stayed relatively low thanks to the home in question serving as collateral. And now, with inflation significantly lower than it was and with a cut to the federal funds rate issued in September and another poised to be issued this week, home equity loans are becoming even more affordable for borrowers.
But an interest rate that’s lower than most popular alternatives isn’t the only timely benefit right now. There’s another, arguably equally beneficial feature for borrowers, one that could negate much of the concern surrounding rates on these products. That said, borrowers will need to act promptly to exploit this opportunity. Below, we’ll explain why, specifically, it’s worth opening a home equity loan before the end of 2024.
Start by seeing what home equity loan rate you’re eligible for here.
Why you should open a home equity loan before the end of 2024
There are just under eight weeks left in 2024. Considering that the amount of time it takes to have your home equity disbursed varies by lender (it can take a few weeks or even months), the window of opportunity to utilize your home equity loan this year is closing. Here’s why that matters: If you use a home equity loan for IRS-eligible home repairs and renovations, you’ll be able to deduct the interest paid on the loan when you file your taxes in the spring.Â
“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS tells taxpayers online. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.
“Generally, you can deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS explains. “However, any interest showing in box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by the property, is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home.”
So if you’re planning on using your home for these reasons (a financial advisor or accountant can delve into exactly what qualifies), then you can add a potentially significant deduction into your taxes before filing next April. But if you wait much longer, you may not even get your funds until January. Or, if you get it before then, the amount you utilize this year will do little to alleviate your overall 2024 tax burden. For all of these reasons, then, if you’re planning on completing home projects – and want to use your home equity to do it – it makes sense to open a home equity loan now, before December 31, 2024.
Get started with a home equity loan now.
The bottom line
If you’re looking for an additional tax deduction and are in the process of finalizing financing for some select home projects, it makes sense to take out a home equity loan now, before the end of the year. But a HELOC will also qualify for the same tax benefits, should you prefer the features of a revolving line of credit versus the lump sum the home equity loan offers. Regardless of which option you choose, however, it’s important to act promptly and strategically. And as your home functions as collateral in these unique borrowing scenarios, you should only withdraw as much as you can afford to repay to avoid losing your home.