Why You Should Consider a HELOC in Today's Financial Environment

Many aspects of life have been up and down over the past few years, and the housing market is no exception. It can be confusing for homeowners who are working to make the right financial choices. Buy or sell? Refinance or keep your current rate? Apply for a home equity loan or home equity line of credit (HELOC)?

The current financial environment is particularly favorable toward HELOCs for a few reasons, including rising home equity and lower average rates. Keep reading to learn more about whether a HELOC could be right for you.

What Is a HELOC and How Does It Work?

A home equity line of credit is a type of home equity loan in which you borrow against your home. Because HELOCs use your home as collateral, they can often offer you a lower interest rate than other types of credit lines.

But instead of receiving a lump sum, like with other types of home equity loans, you receive a revolving line of credit. This revolving line of credit functions much like a credit card. As you pay off your outstanding balance, your line of credit is replenished.

If you’re thinking about a HELOC, be sure to weigh the benefits against the potential consequences. You don’t want to take any unnecessary financial risks. Remember: If you aren’t able to repay the amounts you’ve borrowed, plus interest, you may end up losing your home.

HELOCs can be a good option when you need some extra cash. Not only do they often have lower interest rates, but that interest may be tax-deductible** in some cases. Another benefit of HELOCs is that they are very flexible when it comes to borrowing, repayment, and even how you want to use your available credit.

Particularly in the current environment, HELOCs are a popular choice. That’s because home values and home equity have been rising quickly. According to the Wall Street Journal, home equity hit its highest-ever level in 2022, at $27.8 trillion.

And research by real estate brokerage Redfin showed that more than 50% of homeowners with mortgages have a mortgage rate below 4%. For most in that situation who are looking to have extra cash on hand, a refinance wouldn’t be useful.

For homeowners with equity in their home, HELOCs can help homeowners put that equity to work for them. Equity is directly related to the amount of credit for which a homeowner is qualified for approval .

Here’s an example. If you were to apply for a HELOC, you would be approved for a specific amount of credit by your lender. How is this credit amount set? Many lenders take a percentage of your home’s appraised value. Then, they would subtract from the amount you owe on the existing mortgage.

If you think a HELOC could be right for you, you’re not alone: the number of HELOCs issued in the second quarter of 2022 was up 35% over Q1 and up 44% from the same quarter in 2021.

But what should you do with the extra money as a result of your hard-earned home equity? One major benefit of HELOCs is that there are no limitations on how you can use the cash.

Because a HELOC means borrowing against your home -- most people’s biggest asset -- many homeowners choose to use HELOCs for large home renovation projects. This is also one instance where the interest is tax-deductible**. At the same time, you could be increasing your home’s value, so it’s a win-win.

However, you can also use the money for other expenses. You can access as much or as little of your credit line as you like. Then, you can use the funds for whatever you need -- a bathroom remodel, debt consolidation, education expenses, a major purchase, a financial reserve for unexpected expenses, and more.

Whatever your need, if you’re in search of additional funds, a HELOC may very well be the answer -- especially in the current financial climate.

Are you ready to make the most of your recent home equity gains? Academy Bank offers HELOCs so you can get the cash you need when you need it. You can access as little or as much of your credit line as you like and use the funds for whatever you need. And the best rates, lower fees, faster closing processes, and low to no closing costs can only sweeten the deal.

Academy Bank HELOC Customers Enjoy:

*Subject to credit approval. Restrictions apply. Fees apply.

**Consult a tax advisor about deductibility.

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