One of the perks of being a homeowner is having access to the home equity line of credit that provides quick cash at a reasonable interest rate. There are all kinds of reasons you could need extra money in the new year. You could have unexpected home repairs or medical bills. Perhaps you lost your job or had your hours cut. Fortunately, homeowners with equity in their homes have an option to get the cash they need quickly. The answer is often a home equity line of credit (HELOC) and homeowners love the ability to use their equity to pay for things they need today.
Learn more in this article about the benefits of a HELOC in 2024 for homeowners. If you have any questions or want to apply, talk to one of our loan professionals today. We’ll lay out your home equity line of credit options, potential terms, interest rates, and more.
What Is a Home Equity Line of Credit?
Before getting into the many benefits of a home equity line of credit and why you may want one in 2024, let’s explain the details of the loan. A home equity line of credit is a second mortgage on your home that allows you to take some of your equity in cash. Mortgage companies may approve you to take out some of your equity up to 80% or 90% of the value.
The interest rate on a HELOC is usually variable and can go up or down after the fixed rate period ends after a year or two.
Understanding HELOC Rates
A HELOC is secured against the home, so the rate is usually lower than for credit cards or personal loans. Most home equity lines of credit have variable rates, so the monthly payment can change according to the prime rate. The lender will add a markup to the stated prime rate based on the credit risk to determine the rate you pay. Your interest rate will vary based on your credit score, percentage of home equity you want to take out, and your debt-to-income ratio. Shop current HELOC rates.
HELOCs have a draw period that usually is five or 10 years. This is when you can borrow as much money as you want, up to your credit limit. With a regular HELOC, your payments each month will be both interest and principal payments. But, some lenders offer an interest-only HELOC, so you may only pay interest until the end of the draw period.
If you take out a $50,000 HELOC with a 10-year draw and an 8% rate, your monthly payment would be about $600. If your rate is higher, the payment will obviously be higher.
Why Are Homeowners Applying for HELOC Lines in 2024?
There are many reasons that homeowners are enthusiastic about HELOCs this year:
Credit Card Rates Are Elevated
The Fed increased its rates 11 times in the past two years, which has led to credit card rates soaring. Many Americans have credit card interest rates over 21%! Imagine the interest if you have thousands of dollars in credit card debt!
The Federal Reserve isn’t planning to raise rates in the near future like it did since 2022. But it has said it will likely maintain rates in the current range for a few years, or until inflation abates. This means that credit card rates will stay high for this year, at least.
This means that putting a lot of charges on a credit card will cost homeowners in 2024 and beyond. Also, paying off credit card debt will be expensive, too.
Fortunately, homeowners can rely on a home equity line to get the cash they need, and many are taking the opportunity! Home equity credit lines have much lower rates than unsecured debt and credit cards; the typical rate on home equity loans and HELOCs in 2024 is about 8%. So, if you have a lot of credit card debt, taking out a HELOC could be the ticket to paying it off and avoiding interest rates above 20%. You also may be able to pay off your balances faster.
No wonder so many homeowners love HELOCs these days!
Cash-Out Refinances Aren’t The Best Option Right Now
The Federal Reserve is keeping interest rates elevated to fight inflation. So, mortgage rates will probably stay over 7% for quite some time.
In a lower interest rate environment, many homeowners would turn to a cash-out refinance to pay for home repairs, college tuition, and paying off credit card debt. But that isn’t as good a decision these days. If you got a mortgage in 2020 or 2021, you pay have a rate at 3% or even lower. If you did a cash-out refinance, you would be trading a 3% rate for a 7% rate. That doesn’t make sense for most of us.
That’s why many homeowners are using a HELOC loan to get the cash they need today. Home equity line rates are higher, like everything else, but they are a better option than trading in your first mortgage.
A Recession Is Possible
A HELOC allows homeowners to take out the cash they need – and pay it off and withdraw it again if they want – so it can be a safety net for uncertain economic times. This could really come in handy if there is a recession in 2024. It’s possible, but it may not be as likely as many thought a year ago.
However, if a recession does happen and you lose your job or have reduced hours, a HELOC can help you keep your head above water. Just be sure that you only use the money when you really need it. You should save your HELOC safety net for emergencies only.
Home Values Could Drop
One of the interesting things about the current economic environment is this: Interest rates are high but there is still considerable demand for housing. However, many homeowners don’t want to sell their homes and take on a mortgage with a higher rate. So, the market is somewhat stagnant and prices have stayed relatively high.
But there is a chance in 2024 that your home’s value could drop. It’s possible that higher interest rates could eventually cause values to decline. So, it may make sense in 2024 to get a HELOC and your equity before the home’s value drops.
There are signs in some markets that home prices are starting to decline and they could decline more if a recession sets in. So, your home equity could actually decline. If you are thinking about using your equity to pay for extra expenses, you may want to pull the trigger sooner than later.
You Can Reuse Your Line Of Credit
Another benefit that homeowners love about a HELOC is that you can reuse your line of credit, just like a credit card. Suppose you take out a $25,000 HELOC and pay it off within five years. Assuming your credit profile is similar to when you took it out, you can reuse the line of credit. This could be helpful if you have additional large expenses in the future.
Summary on Home Equity Credit Line
Getting a home equity line of credit in 2024 could be one of the best ways to get low-interest cash in a relatively high interest rate environment. Many homeowners are turning to HELOCs this year to get money to pay for college expenses, home renovations, healthcare expenses, and pay off credit card debt. If you are interested in taking out a home equity line, speak to one of our lenders today.