While the stock market and interest rates are showing volatility, homeowners may have a significant advantage in today’s market. In the second quarter of 2021, American homeowners with mortgages gained a collective $2.9 trillion in equity — representing a nearly 30% year-over-year increase. And that means it could be the right time to consider a Home Equity Line of Credit (HELOC) to make the most of that equity increase.
Whether looking to fund a home improvement project or other major expenses, or simply safeguard against rising inflation, a HELOC can meet a range of immediate and ongoing needs. And because of today’s soaring property values, you may be eligible for more credit than you realize.
Learn more about HELOCs, how they work, and how they could benefit you.
What Is a HELOC, and How Does it Work?
A HELOC is a line of credit secured by your home, and your home’s equity serves as collateral. In exchange, you receive a revolving line of credit -- similar to a credit card. Typically, you can borrow up to 85% of your available home equity. You don’t lose your current mortgage rate and you don’t have to pay much, if anything, in closing costs. Plus, as you repay your outstanding HELOC balance, the amount of available credit is replenished.
While HELOCs may seem to function similarly to a credit card, they differ in some significant ways. For example, a HELOC is a form of secured debt. With your home serving as collateral, you can count on considerably lower interest rates. Today, the average credit card interest rate is 14%, whereas the average HELOC rate is less than 5%.
For comparison, cash out refinancing has been a popular option in recent years due to record low interest rates. With a cash out refinance, you take out a new mortgage for more than you owe on your existing one – and keep the difference in cash.
However, with rising interest rates, cash-out options are less attractive, as you end up with a higher rate increasing your monthly payment as you are taking out a larger amount than your current mortgage at a higher rate.
How Homeowners Can Take Advantage of HELOCs
With home values at an all-time high, many Americans are seeing their home equity grow. But most of us have learned in the past few years that circumstances can change quickly and drastically. With stubborn inflation and rising mortgage rates, chances are good that the housing market will cool in the coming months -- meaning home values and home equity could soon be dropping. For homeowners in need of cash, now may be the time to take full advantage of recent gains before they dissipate.
In other words, a HELOC is one way to use equity to gain more equity. For more than two years, we have spent considerable time at home. During this period, people became aware of deficiencies and developed increasingly vivid visions of what their dream home might look like. Although normal life is resuming, many of us can’t shake the urge to improve — or even ditch — our current dwellings.
However, it’s still very much a seller’s market. As inventory remains low and mortgage rates trend upward, buyers may have a hard time finding and affording the perfect property. But taking a different approach -- like using a HELOC to finance home improvement projects. Not only can they make their homes feel like new, but it can also increase the property value of their home at the same time.
And home projects aren’t the only way you can use a HELOC. With rising credit card interest rates, many financial experts are encouraging borrowers to pay them off as soon as possible. A HELOC can be a great tool for consolidating higher-interest debt like credit cards and some student loans, which are also poised for changes.
How Else Can a HELOC Be Useful?
Although college tuition rates have seen a modest drop as of late, that is unlikely to comfort students experiencing rising expenses most everywhere else. A HELOC can provide vital funds for tuition assistance to ensure long-term plans stay the course. And with a 25-year repayment period, individuals are likely to feel real relief from financial pressure.
As costs rise in many aspects of life, HELOCs can offer peace of mind and a financial safety net in the days ahead. Remember: you only pay interest on the funds you use, so the money is available when you need it.
Whether you plan to use the funds for a kitchen remodel, debt consolidation, education expenses, a major purchase, a financial reserve for unexpected expenses, or something else, HELOCs can come in handy.
Of course, those are just a handful of ways homeowners can tap into newfound equity to grow it further, offset expenses or pursue a goal. The possibilities extend beyond what was discussed here. Whatever the need or desire, for many homeowners looking for additional funds, a HELOC may very well be the answer, especially in the current financial climate.
Get Your HELOC* with Armed Forces Bank
Armed Forces Bank offers HELOCs so our valued service members and families can get the cash you need, when you need it. Access as little or as much of your credit line as you like and use the funds for whatever you need.
Features of Armed Forces Bank home equity lines of credit** include:
Fixed introductory rate special for 6 months
Borrow up to 85% of your home's value
Low minimum monthly payments
Annual fee waived with auto-draft monthly payments
Low or no closing costs
A lower interest rate than most credit cards
Easy access to your funds
*Subject to credit approval.