HELOC interest rates just plummeted. Is it worth opening one now?

If you've been looking for an inexpensive way to borrow a large sum of money right now, you may not have to look much further. If you're a homeowner, arguably the best way to borrow currently is via your home equity. And that was made especially true this week after interest rates on home equity lines of credit (HELOCs) plummeted to a new, multi-year low.

The median rate on a HELOC is now just 7.44%, according to Bankrate data released on Wednesday. That leaves the rate at its lowest level in three years, and it opens up new, more affordable borrowing opportunities for homeowners struggling in today's uneven economic climate. 

At the same time, HELOCs and home equity loans do leverage your home, which functions as collateral in these exchanges. So borrowers shouldn't rush to apply without understanding the timely benefits of doing so. With rates here so low, however, there's a compelling case to be made for using this unique product right now. Below, we'll break down three reasons why it could be worth applying for right away.

See how much home equity you could borrow with a HELOC here.

Is it worth opening a HELOC now?

Sure, an interest rate closing in on 7% is one of the major reasons why you may want to borrow with a HELOC currently. But it's not the only reason why the line of credit could be worth opening now. Here are three others:

It's one of the cheapest ways to borrow money overall right now

At just 7.44% now, a HELOC is your cheapest way to borrow home equity in today's economy. Home equity loans come with rates over 8%, approximately, and cash-out refinances will require you to give up your current, low mortgage rate for one of today's higher ones. 

But a HELOC isn't just now the cheapest way to borrow equity; it's once again the cheapest way to borrow money overall. With personal loan interest rates around 12% now and credit card rates comfortably over 20%, the cost-effectiveness of a HELOC becomes stark. And it could soon become even cheaper, making this disparity even more significant.

See how low your current HELOC rate offers are now.

It's well-positioned to exploit other rate drops ahead

A HELOC has a variable interest rate that will change monthly for homeowners. That means that even if you secure one of today's lower-rate offers, you can still benefit from additional rate drops ahead as the product's rate will change independently. 

You don't need to refinance or pay for refinancing closing costs like you would with a home equity loan. And with many experts expecting the interest rate climate to further cool later this year, this could be the smart way to position yourself for future cost savings.

Interest-only payments are required during the draw period

HELOC lenders typically require just interest-only payments during the product's initial draw period (10 years, approximately). This makes the low interest costs associated with a HELOC even more advantageous right now. Not only are rates and costs here lower than they've been in years, but if you act now, those are the only costs you'll be liable to repay initially. 

Only after the draw period has concluded will full repayments be mandated. And that will only be on the amount of the line of credit used, not the full HELOC credit line you were initially approved for. So, with a little strategy, borrowers can keep their monthly payments limited for months and, potentially, years ahead.

The bottom line

With HELOC interest rates now at their lowest level in years, homeowners may be contemplating borrowing with this unique tool. And with today's rates making it one of the cheapest ways to borrow money overall, its variable rate structure is well-positioned to exploit other rate drops ahead, and its repayment design is favorable for those who want to keep payments low to start, taking out a HELOC could make sense right now. Just be careful whenever borrowing equity, even with rates currently low, as your home is on the line here and you could risk foreclosure if you're ultimately unable to pay it back as agreed to.