Will a home equity loan or HELOC be better this January?
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The economy has changed in the final months of 2024— Fed cuts interest rateslowering the target interest rate to a range of 4.25% to 4.50%. The unemployment rate remains low at 4.1%. Inflation has fallen from a multi-decade high of 9.1% in 2022, but remains above the Fed’s 2% target. It has picked up slightly in recent months, leading the Federal Reserve to reassess the number of rate cuts in 2025.
These changes are likely to continue to impact the interest rate landscape and could significantly impact home equity lending options. If you want to gain equity in your home as quickly as possible, it’s important to understand which lending option is best for your situation.
one home equity loan and a Home Equity Line of Credit (HELOC) All are viable options. To find out what the best options are for homeowners in January and later this year, we asked three financial experts to weigh in.
Find out how much home equity you’re eligible to borrow now.
Is a Home Equity Loan or HELOC Better This January?
Not sure which of these options is preferable this month? Here’s what to consider with both:
The case for home equity loans
A home equity loan is similar to a traditional loan, but it is secured using the equity in your home as collateral. The borrower will receive a one-time payment and will repay the loan in monthly installments.
Home equity loan interest rates are fixedso your monthly payments will be the same and easy to budget for. Home Equity Loan Interest Rates tend to be lower, and if you use the money to improve your home, the interest you pay may be duty free.
“Home equity loans are best for borrowers who need to pay a large one-time expense, such as debt consolidation or a major purchase,” said Mark Damsgaard, founder of Global Residence Index. “These types of loans typically have fixed interest rates, so there is stability if interest rate trends are uncertain.”
Find out how much interest you can get on a home equity loan here.
The case of HELOC
“With mortgage rates still higher than what many consumers consider normal, renovating or tapping home equity may be a smart move,” said Denya Macaluso, vice president of residential lending at Michigan State University Federal Credit Union. “A home equity line of credit may be beneficial. , because big expenses like a wedding or vacation are more expensive if financed through a credit card.”
When you qualify for a HELOC, you receive a line of credit that you can draw on on an ongoing basis. HELOCs have variable interest rates, so the interest rate can change based on market conditions.
The borrowing period can last up to 10 years, during which time you can withdraw funds as needed and only pay interest on the borrowed money. After the borrowing period ends, you will enter repayment periodusually lasting 10 to 20 years.
HELOCs are best suited for borrowers who prioritize flexibility and expect to incur ongoing fees over time, Damsgaard said. “Because interest rates are variable, a HELOC makes sense for them. If interest rates drop further, the borrower’s payments may be lower,” he noted.
bottom line
both HELOCs and Home Equity Loans This could be a great way to gain equity in your home this January, depending on your goals and financial situation.
“With federal rates expected to fall 50 basis points in 2025, HELOCs may become more cost-effective as rates fall,” Macaluso noted. “The ability of hybrid loans to offer lines of credit and target market segments provides borrowers with the opportunity to adapt to market changes. Flexibility. “However, the final choice will depend on your personal financial situation and borrowing preferences this month and in the coming months.
