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3 home equity questions homeowners should ask now

Homeowners who are considering accessing their home equity should do thorough research before acting. Getty Images

For much of the last two years, borrowers have been saddled with higher interest rates on everything from mortgages to personal loans to credit cards. Fortunately, there's been one relatively low-rate alternative: home equity borrowing. By utilizing a home equity loan or home equity line of credit (HELOC) in recent years, homeowners could access large sums of money, often at a much lower interest rate than if they had pursued popular alternatives.

As with all financial products and services, however, the timing for using these options is critical. And with inflation seemingly on a downward (if uneven) trajectory and interest rate cuts on the horizon, homeowners need to understand their options before pursuing this type of credit. That understanding starts with obtaining the answers to a series of important questions. Below, we'll list — and answer — three home equity questions homeowners should be asking now.

Start by seeing what home equity loan rate you could qualify for here.

3 home equity questions homeowners should ask now

Here are three important questions homeowners considering using their home equity this spring should ask now.

Where are interest rates headed?

The benchmark interest rate range, which largely influences rates on borrowing products, is at a 23-year high currently. But many are predicting a reduction in that range soon, possibly as soon as this summer. If that happens then the rates on home equity loans and HELOCs will fall, too. 

But an interest rate reduction, as beneficial as it may be, will only be an extra incentive for homeowners considering this option. That's because rates for home equity loans and HELOCs are already much better than other alternatives like credit cards (hovering around 20% currently) and personal loans (averaging around 12%). Home equity loans and HELOCs, meanwhile, are both under 9% right now — and will fall lower if and when the Federal Reserve issues its first rate cut of 2024.

Learn more about today's home equity interest rates here.

Is a home equity loan or HELOC better this spring?

Home equity loans and HELOCs each have unique advantages and disadvantages. But the timing here is critical. Thanks to the variable interest rate that HELOCs come with — and the likelihood of interest rate cuts to come later this year — there is a strong case for using a HELOC instead of a home equity loan this spring. This will leave borrowers in a stronger position — if and when rates do fall — to then see their HELOC rate fall in tandem. 

Home equity loan users, meanwhile, would have to refinance their loans to secure that lower rate. That said, that variable rate nature works in both ways so borrowers should be prepared for the volatility it presents in advance.

How much home equity do I have?

The average amount of home equity homeowners have right now is around $299,000. That's a significant amount of money that can be used for debt consolidation, major expenses and even home repairs and renovations. If you use either a home equity loan or HELOC for the latter, you may also qualify for interest tax deductions when you file your return in 2025. 

That said, that average amount of equity is exactly that — an average. Depending on multiple factors, you may have more or less to utilize. But if you're located in a region of the country that has experienced a rise in home values, now may be an opportune time to act, before rates are cut and the real estate market readjusts. 

See how much equity you could borrow here today.

The bottom line

With home equity borrowing rates lower than many alternatives — and with the prospect of them falling even lower in the months to come — now is a great time for homeowners to act. Before doing so, however, they should do their research and have the answers to specific questions. By better understanding where home equity interest rates are heading, which type of borrowing option may be preferable and how much equity they realistically have to utilize, they'll be better prepared to use their home equity both now and in the future.

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