Why you should get a home equity loan if the price is high

The interest rate environment in the US has not been particularly favorable in recent months. And with the Federal Reserve expected to raise interest rates again this week, the prospect of relief looks dim.

While rising interest rates have hurt homebuyers and current owners looking to refinance, their impact on home values ​​has varied. Some home values ​​have dropped from where they were in 2020 and 2021 while others have held steady or even increased. In January 2023, house prices were up 3.8% from where they were 12 months ago. In February, prices rose in 40 major U.S. cities, CBS News Report

If you’re a homeowner in one of those cities or just a homeowner who’s recently seen their home increase in value, one Home equity loan Might be worth exploring.

You can get started now by checking the rates and eligibility terms here.

Why you should get a home equity loan if the price is high

Simply put: the more equity you build up in your home, the more you can withdraw. Lenders typically allow homeowners to borrow 80% to 85% of their home equity per Use them as appropriate. So if home values ​​have gone up lately, there may be plenty of cash to work with.

This is the reason Home equity isn’t just built up by the amount you’ve paid toward your mortgage. It also takes into account the current value of your home. For example, let’s say your initial mortgage amount was $400,000 Since then you have paid $100,000 worth of the policy, leaving you with an outstanding balance of $300,000. At the time of making this payment, however, the value of your home increased by $500,000. In this scenario, you’ll have $200,000 (payment + home value) of home equity to work with.

So, even if you’ve been making your monthly mortgage payments as usual, you may still have enough equity to deduct from you years ago. Check out your home equity loan options here now to see how much you can borrow

Advantages of home equity loans

A home equity loan has multiple benefits for homeowners. Here are the two main ones:

It can be tax-deductible

If used for an IRS-approved reason Home equity loan interest can be deducted from your taxes at the end of the year. “Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explained online. “The loan must be secured by the taxpayer’s principal home or second home (eligible residence) and meet other requirements.

“Generally, you can deduct home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve. Qualifying home .”

It has low interest rate

If you need credit for incremental expenses and are considering one Credit card or personal loan Then you should consider a home equity loan or Home Equity Line of Credit (HELOC). Both of these credit types come with significantly Low interest rates than credit cards (which are about 20%) and personal loans (about 10%). Depending on your personal credit history and other factors, however, you can get a home equity loan for around 8% or less.

Just be sure to shop around for lenders and rates before signing on the dotted line (and, no, you don’t need to use your current mortgage lender to get a home equity loan). Check out your home equity loan options here now to learn more.

Bottom line

In today’s inflationary environment, Americans need to be discerning about which types of credit are worthwhile and which to avoid. For homeowners who have seen the value of their home increase, a home equity loan can be a suitable option. This type of loan allows the homeowner to access approximately 80% of the value of their home, which in many cases can equate to hundreds of thousands of dollars.

But a home equity loan is only worth it when the price is not high. It’s also convenient because, if used correctly, the interest can be deducted from your taxes. And its interest rates are lower than some other, more popular forms of credit, making it particularly attractive to those who need an extra boost in today’s economy.