Why you should get a HELOC if home prices are high

When it comes to funding large expenses or covering emergencies, many people turn to credit cards and personal loan. But these products carry high interest rates — credit card rates are currently around 20%, and personal loans are around 8% or more. This means that you will repay substantially more than the original amount borrowed.

If you’re a homeowner, you can tap into extra cash at much lower rates Home is equal, or values ​​you have created in your home. Two ways to do this are a Home equity loan or Home Equity Line of Credit (HELOC).

A HELOC is a great option for people who want ongoing access to funds they can withdraw as needed. HELOCs work like credit cards In this you are authorized for a certain amount, and you can withdraw funds up to that amount whenever you need during the draw period. Unlike credit cards, however, HELOC rates is in the single digits (currently around 7.8% to 8%).

HELOCs can be especially valuable when home values ​​are high, as they are right now. In January, home prices rose 3.8% year over year. In February, prices rose by double digits in 40 major U.S. cities. CBS News Reports and while growth slows, prices may remain high for some time. The latest from Zillow Home Price and Sales Forecasts Predicts that home prices will increase by 0.6% from March 2023 to March 2024 as home inventory remains low.

If your home is going up in value, read on to find out why now is a good time to consider getting a HELOC.

Check out HELOC rates here to see how much you might qualify for.

Why you should get a HELOC if home prices are high

High home prices aren’t great for buyers, but they are great for homeowners looking to cash in on their equity.

The amount of equity in your home Depends on two things: how much of your mortgage balance you’ve paid off and how much your home is currently worth. To calculate your home equity, subtract your current mortgage balance from your home’s current market value (which you can estimate using a site Zillo)

For example, let’s say you bought your home for $400,000. Since then, you’ve paid off $100,000 of your mortgage, bringing the balance down to $300,000. Meanwhile, the value of your home has increased to $500,000. In this scenario your home equity would be $200,000 ($500,000 – $300,000).

Now, consider your home’s value increases by $600,000. In this case, your home equity would be $300,000 ($600,000 – $300,000). You still paid the same amount on your mortgage, but you have an extra $100,000 in equity.

The higher your home’s current market value, the more equity you can draw from — even if you haven’t made a huge dent in your mortgage balance. You can usually borrow 80% to 85% of your home equity with a HELOC.

If you think a HELOC might be right for you, start exploring your options here

Benefits of a HELOC

If you want to convert your home equity into cash, there are many reasons Why a HELOC is worth consideringincluding

• Interest rates are generally lower than other types of loans.
• You only pay interest on the amount you use.
• You can use it for anything you want
• If you use the funds for an IRS-approved purpose, interest may accrue duty free.

If you want a lump sum of cash for a one-time expense, a Home equity loan May be a good fit for you.

Bottom line

When home values ​​are high, you can get more out of a HELOC. So, if you don’t need the funds immediately, it’s worth waiting if home values ​​in your area are currently low. In the meantime, you can increase your potential HELOC amount Building equity Including home improvements like replacing an old roof or upgrading a kitchen or bathroom. per Get the best HELOC ratesShop around and compare quotes from multiple lenders.

Shop for HELOCs online now.