Will a HELOC or home equity loan be better this April?
With the next Federal Reserve meeting scheduled for April 30 — and the next inflation report slated for release on April 10 — many will be hopeful for some economic relief next month. If the inflation report shows a reduction in growth, the Fed may elect to keep interest rates unchanged or even reduce them if they feel confident that inflation is finally cooling.
However, if there is another disappointing inflation report, as there was this month, the Fed's response may differ.
Against this backdrop, borrowers have limited options. Interest rate hikes have caused the cost of borrowing with mortgages, personal loans and other products to surge in recent years. One cost-effective alternative, however, has been home equity loans and home equity lines of credit (HELOCs). But which will be better this April, a month in which the trajectory of inflation and interest rates could change? That's what we'll break down below.
Are you considering tapping into your home equity? See what rate you could qualify for here now.
Will a HELOC or home equity loan be better this April?
Here's what to consider when looking for a better home equity product in the new month.
Why a HELOC may be better this April
A HELOC operates like a revolving line of credit that allows homeowners to access their existing home equity. Unlike home equity loans, HELOCs come with variable interest rates that can change monthly. While today's HELOC rates are slightly higher than home equity loan rates, they're still competitive — and likely to fall if inflation improves and interest rates are reduced.
This could be a major advantage for HELOC users. While a reduction in rates won't come in April, by securing one during the month users will be in a prime position to see their rate cut either in May or in June, when many experts predict the first rate cut of 2024. Home equity loan borrowers, meanwhile, would need to refinance to secure a lower rate.
Learn more about your HELOC options online today.
Why a home equity loan may be better this April
If your primary goal is to secure the lowest home equity rate possible right now, regardless of where the rate climate is headed, then a home equity loan may be better in April. Home equity loan rates, as of March 27, are 8.59% on average, with 10-year loans at 8.73% and 15-year loans at 8.70% — all three of which are lower than today's 8.99% HELOC rate.
A home equity loan could also be preferable for you next month if you feel that there's still work left to do to tame inflation — and that interest rate cuts will be delayed yet again. If this is how you've interpreted recent data (and some have), then it could make sense to lock in a home equity loan rate now, before any upward adjustments come later in the year.
The bottom line
The choice between a HELOC and a home equity loan is a personal one with many factors to consider, especially now, with the prospect of interest rate cuts higher than it's been in years. While it's important to pick the optimal borrowing product for your needs and goals, either option is better than popular alternatives like credit cards (which hover around 20% right now) and personal loans (which have an average interest rate of 12%). Cash-out refinancing, meanwhile, would change your mortgage terms and likely saddle you with a higher mortgage interest rate in the process. But by understanding the drawbacks of the alternatives — and the rate considerations of HELOCs and home equity loans in the weeks and months ahead — borrowers will be better prepared to make an informed, secure decision.
