If you've been eyeing a home equity loan or HELOC (Home Equity Line of Credit) to tap into your home's value, buckle up – rates are still on the rise. As of December 22, 2023, borrowing for home improvement projects, debt consolidation, or other financial needs just got a bit more expensive.
Let's break down the latest numbers:
- HELOCs: For a $100,000 HELOC, the average Annual Percentage Rate (APR) has hit 9.12% for a 60% Loan-to-Value (LTV) ratio (your loan amount compared to your home's value). This means expect to pay around $70 more per month compared to just a month ago.
- Home Equity Loans: Looking for a lump sum? Average APRs for 5-year fixed-rate home equity loans have climbed to 8.21% for 60% LTV and 8.45% for 80% LTV. That translates to roughly $30-$40 more per month compared to November.
Why are rates rising? The Federal Reserve's ongoing battle against inflation continues to drive up borrowing costs across the board, including mortgages and home equity products. Higher rates mean it's costlier to borrow, so lenders pass those costs on to consumers through higher APRs.
Should you still tap into your home equity? That depends on your individual circumstances. If you have a pressing need for funds and a strong credit score to qualify for competitive rates, it might still be a viable option. However, it's crucial to weigh the pros and cons carefully:
- Pros: Access to quick cash, potentially lower rates than personal loans, tax benefits in some cases.
- Cons: Putting your home at risk (defaulting could lead to foreclosure), increasing monthly payments, potential future rate hikes.
Before diving in, consider:
- Exploring alternatives: Can you save up for your project instead? Are there government grants or lower-interest loan options available?
- Shopping around: Compare rates and terms from multiple lenders to snag the best deal.
- Doing the math: Factor in closing costs, origination fees, and repayment terms to see if the total cost makes sense for your budget.
Remember, rising rates don't spell the end of home equity borrowing. But they do necessitate a cautious and well-informed approach. By crunching the numbers, exploring alternatives, and comparing offers, you can make a smart decision about whether tapping into your home equity is the right move for you in this ever-changing financial landscape.
