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The borrowing environment of the last two years has not been particularly favorable. With inflation hitting its highest point in decades in June 2022 and interest rates rising to their highest point since 2001 last summer, borrowers in need of extra cash have had limited options. One cost-effective alternative has been home equity borrowing for owners who have accessible value in their homes. By using a home equity loan or home equity line of credit (HELOC), homeowners can gain access to tens and possibly hundreds of thousands of dollars right now and they can do it at significantly lower interest rates than many other alternatives.

But with inflation still stubborn, if significantly cooled, and the prospect of interest rate hikes more likely than many had anticipated at this stage in 2024, owners need to be strategic with their home equity. To that end, there are some moves owners should consider making this May to optimize this unique borrowing option. Below, we’ll break down three of them.

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3 strategic home equity moves to make this May 

Here are three timely and strategic home equity borrowing moves to make this month.

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The interest rate climate is evolving. At the end of 2023, hope was high that rates would have already been cut at this point in 2024. But a series of disappointing inflation reports have dampened those expectations and now, it’s possible that rate hikes could come into play if the Fed can’t continue to lower inflation at today’s existing rates. 

Understanding this, then, borrowers who want to access their home equity should apply now while rates are still in the single digits. Waiting around could be risky and result in higher borrowing costs, especially if the inflation report scheduled for release on May 15 is a discouraging one. So, if you know you need the financing, it makes sense to apply now.

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Consider a home equity loan over a HELOC

A home equity loan comes with a lower interest rate than a HELOC right now (8.67% versus 9.66%) but that rate is also fixed. So if the interest rate climate changes and rates go up, the variable rate on a HELOC will follow but the rates on home equity loans will remain the same. This is a major advantage in the face of a rate environment that’s been hard to predict in recent years. And if rates ultimately stabilize and fall in the future, borrowers could always refinance their home equity loan, then. But if you’re looking around for a lower rate, more reliable, fixed option, pursue a home equity loan over a HELOC now. That said, it’s important to approach this option in the right way, which leads to the next point.

Only borrow exactly what you need

With a home equity loan, you won’t be able to go above your credit limit without re-applying for a new loan. This is different from a HELOC, which acts as a revolving line of credit similar to credit cards. So you’ll have to know the exact amount you need when pursuing a home equity loan. But that’s not a negative in today’s economy. With inflation and interest rates problematic for many, it’s especially important to only borrow exactly what you need. This is particularly true when considering home equity since your home will be used as collateral in these circumstances. If you can’t pay back what you borrow you could risk losing your home in the process. So be careful with the amount you ultimately apply for.

The bottom line

Home equity loans and HELOCs are two of the most cost-effective ways to borrow money right now. But with a changing rate climate possible and inflation still problematic, homeowners will need to approach this option strategically. This May, that means applying quickly before rates rise again. It also means considering a home equity loan over a HELOC and it will require borrowing only exactly what you need, to avoid putting your home in jeopardy. By making these strategic moves now, owners will be able to take advantage of this new unique borrowing option in a more secure and beneficial way.