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When it comes to borrowing money, timing is everything. Unfortunately, the last two years haven’t been ideal times for many Americans to act. As inflation surged and interest rates rose, borrowing became much more expensive, whether with a mortgage, personal loan or even by swiping a credit card. But inflation has now dropped from around 9% in June 2022 to just over 2% in September 2024. And the first interest rate cut since 2020 was issued just weeks ago, with the next cut to the federal funds rate expected to be issued this week.
While that cut is expected to be in the form of just 25 basis points, it will offer additional relief for borrowers, especially those who withdraw from their home equity with a line of credit (HELOC). Accordingly, many homeowners may be wondering about the timely benefits of opening a HELOC. Below, we’ll break down three reasons why it may be worth opening this week.
Start by seeing what HELOC rate you could qualify for here.
Should you open a HELOC this week?
Here are three big reasons why it’s worth opening a HELOC this week:
You can secure a lower rate
While the Federal Reserve doesn’t directly determine home equity borrowing rates, it can greatly affect them, arguably more so than it would for products like mortgages, for example. So if the Fed issues a rate cut after its current meeting on November 7, variable rates on HELOCs could potentially adjust downward, too. That said, some lenders may have already priced in this predicted cut, so you may not see a significant difference between what’s being offered now and what could be offered by the end of the week. It’s important, then, to shop around to see where you can find the very lowest HELOC rate.
You can position yourself for an even lower rate in December
HELOC interest rates change monthly for borrowers. So if you open one this week you can likely position yourself for an even lower rate in December, as most expect the Fed to continue its rate-cutting campaign in the final month of the year. Assuming the Fed cuts the federal funds rate to a range between 4.50% to 4.75% this week, the CME Group’s FedWatch tool pegs another cut to a range between 4.25% and 4.50% at more than 67% right now. By opening a HELOC this week or this month, then, you’ll likely benefit from an immediate drop in your rate in December.Â
You can still qualify for the tax deduction
Even with interest rates falling on home equity products, borrowers who intend to use them for home repairs and renovations shouldn’t worry too much. That’s because interest on both home equity loans and HELOC is tax-deductible if used for eligible home projects. That said, the window of opportunity to utilize this deduction for 2024 is quickly approaching with less than eight weeks left in the year. So if you intend to use a HELOC for these purposes, it’s smart to act promptly. Otherwise, you’ll wind up delaying this critical tax deduction until it’s time to file your return again in 2026.
The bottom line
While it’s impossible to time your borrowing actions perfectly, there are multiple reasons why borrowing with a HELOC this week could be advantageous. With a rate that’s set to potentially cool immediately — and with expectations that it will continue to decline in December — many homeowners would benefit from opening a HELOC now. Plus, by acting promptly, they’ll still maintain their ability to deduct the interest paid on the line of credit when they file their taxes in the spring (if they use it for eligible purposes). That said, the home serves as collateral in these unique borrowing circumstances, so homeowners will need to make sure that they can comfortably repay all that they’ve deducted to avoid losing their home in the process.
Have more HELOC questions? Learn more here today.