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With the average amount of home equity near a record of approximately $330,000 right now, homeowners have a large amount of money to utilize as they see fit. Whether they use those funds to pay for a wedding, a college education or to consolidate high interest credit card debt, home equity is often the smart way to do so. And it’s one of the least expensive alternatives, now that credit card interest rates are near 23% while personal loan rates are approaching 13%.
While there are multiple ways to tap into your home equity, from cash-out refinancing to reverse mortgages, two of the more attractive options right now are home equity loans and home equity lines of credit (HELOCs). Although both offer borrowers inexpensive ways to tap into their equity, they don’t operate in precisely the same way – and their interest rates aren’t identical, either. Going into November, then, when another cut to the federal funds rate is anticipated, which will be better for borrowers? That’s what we’ll break down below.
See how low of a home equity loan rate you could secure here.
Will a HELOC or home equity loan be better this November?
While the benefits of each of these home equity options depend on the individual borrower profile, there are some timely elements to account for this November. Here’s what to consider:
Why a HELOC could be better this November
If you’re a borrower determined to take advantage of the lowest interest rate possible then it makes sense to pursue a HELOC this November instead of a home equity loan – despite the latter have the slightly lower interest rate. Here’s why: HELOCs have variable interest rates that will change monthly as the overall rate climate evolves. This is a distinct advantage this November and, likely, in the months to come as interest rate cuts continue to be issued.
So the 8.69% HELOC rate you open the line of credit with today could be lower in December, January and beyond. The 8.35% home equity loan rate, however, will need to be refinanced to secure any future rate savings. And you’ll need to pay refinancing costs to get that rate (often 1% to 5% of the total loan value). So, in short, if you want to be best positioned to capitalize on future interest rate cuts, a HELOC could be better for you this November.
Why a home equity loan could be better this November
If waiting for rates to be cut – and there’s no guarantee that they will or by how much – is too risky for your financial circumstances, then a home equity loan could be better this November. These loans do come with a slightly lower interest rate than HELOCs, which may seem marginal on paper but can add up to substantial savings over a 10 or 15-year repayment period.
But they’ll also protect you against any future interest rate volatility, making your monthly payments in December and beyond easy to budget for. And if rates wind up dropping by a significant amount in the winter or spring of 2025, you could always refinance then – while still gaining access to the low interest rate funding you need this fall.
The bottom line
The choice between a HELOC or a home equity loan this November is a personal one, largely dependent on your financial situation and appetite for rate volatility. No matter which option you ultimately choose, however, be sure to only withdraw an amount of equity that you can easily afford to repay. With the average amount of home equity high now, it may be tempting to overborrow. But that would be a mistake since your home is collateral in this borrowing exchange and you could wind up losing it if unable to repay all that you’ve withdrawn.
Have more question about your home equity loan options this November? Learn more here.