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When it comes to borrowing from your equityyou have several options to choose from.
By reverse mortgages for seniors cash-out refinancing Unpleasant mortgage loansthere are now multiple ways to tap into your wealth. But only one – home equity lines of credit (HELOCs) — allows you to benefit from a cooling climate. That’s because the rates for these products are variable and positioned to change monthly depending on what happens in the broader economy. And with several interest rate cuts Issued this year and likely another loan before the Federal Reserve’s final meeting in 2024, many borrowers will understandably be turning to this option now.
Still, there are some important caveats to keep in mind at this point, especially if you’re borrowing against a critical asset like your home. This extends to knowing the truth about some misleading concepts. Below, we’ll outline three current HELOC myths that homeowners should be aware of right now.
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3 Current HELOC Myths Homeowners Need to Know Now
Not sure if now is the right time to secure a HELOC? These common but current myths can help answer that question:
The price will continue to fall
This isn’t a total myth, but it’s not completely factual either. No one knows for sure HELOC interest rates will continue to decline – as they have done all year round – or whether they will be static or even increase. After all, inflation just rose in October. Additional increases there will almost certainly cause interest rates to rise again.
But even if interest rates continue to fall, that doesn’t mean borrowers should delay taking action. HELOC rates are adjusted independently each month. So, for example, if interest rates fall in December or January, borrowers will automatically be in a position to take advantage. If they rise, however, it could get expensive. So it’s worth considering these scenarios, with the understanding that interest rates may or may not continue to fall.
Explore your current HELOC options online today.
The value of homes will continue to rise
The average equity of the home is currently high: just under $330,000. And house prices continue to rise in many parts of the country, meaning you could end up with more equity in the future if you delay trading. But the key word there is ‘can’.
While not exactly a myth, it is misleading to assume that home prices will continue to rise. And even if they do, it’s unlikely they’ll grow so dramatically that it will have been worth applying for the financing you already need. There are all kinds of factors that can cause home values to drop. So take this real possibility into account to best determine your next course of action.
If you file now, you are guaranteed a tax deduction
Interest paid on HELOCs is tax deductible when used for eligible home repairs and projects. But applying now, in the last weeks of 2024, is only the first step. If you want to deduct the interest you paid on the line of credit when you file your return in the spring, you’ll need to file (and use the HELOC) sometime between now and January 1, 2025. If you decide to use it for qualifying purposes in 2025, you will still have to wait until you file your next return in 2026 to take advantage of it. Then time your use accordingly.
The bottom line
For many homeowners, now could be the right time to open a HELOC. However, others may benefit from waiting. Understanding the above myths can help each type of borrower better determine when to act. However, it’s crucial to carefully weigh all home equity lending options, as your home serves as collateral when you borrow from it, putting your homeownership at risk if you don’t pay back everything you take out.
Learn more about your current HELOC options here.
