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Leverage Your Home Equity with a HELOC in a High Mortgage Rate Landscape

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In recent times, homeowners are exploring effective ways to access additional funds without diving into the high mortgage rate tide. One of the smart avenues to consider is a Home Equity Line of Credit (HELOC). Unlike traditional loan methods, a HELOC is a flexible financial tool that allows homeowners to tap into their home’s equity as they need it, making it an attractive alternative amidst rising mortgage rates.

 

What is a HELOC?

A HELOC is a revolving line of credit that allows homeowners to borrow against the equity in their home. Unlike a home equity loan, which provides a lump sum upfront, a HELOC sets a credit limit based on the equity value and allows borrowers to draw funds as needed over a set period known as the draw period. During this time, payments may be required based off the balance owed on the HELOC. T

 

Common uses of a HELOC

A HELOC’s versatility is one of its hallmark features. Here’s how individuals often utilize a HELOC:

 

Home Improvements: A popular use, enabling homeowners to enhance the value of their home or make minor improvements to improve their quality of life.

Debt Consolidation: By consolidating multiple high-interest debts into a lower interest HELOC, individuals can manage their finances better and save money at the same time.

Education Expenses: Covering tuition fees or other education-related expenses is a common use of a HELOC.

Emergency Expenses: The ready access to funds can be a lifesaver in case of unexpected emergencies that you don’t have the savings to cover.

Investment Opportunities: Some savvy homeowners use a HELOC to seize investment opportunities that arise, but this is a much rarer use.

 

HELOC as an alternative to refinancing

With mortgage rates on an upward trajectory, traditional refinancing might not be the most economical choice for many homeowners. However, a HELOC provides a cost-effective alternative. Here are a few reasons why:

 

Lower Closing Costs: HELOCs often come with lower closing costs compared to refinancing, which can save homeowners a significant amount upfront.

Flexibility: The pay-as-you-go nature of a HELOC is particularly appealing as it provides financial flexibility, only requiring you to pay interest on the amount you draw.

Rate Variability: Since HELOCs come with variable rates, there is a chance for the rate to adjust over time, potentially saving you money without having to do a broader refinance.

Keep Your Rate: If you refinanced during the low interest rate environment that started in 2020, it’s likely your mortgage interest rate is significantly lower than current rates in late 2023. With a HELOC, by avoiding losing it as part of a broader refinance.

 

Navigating the high mortgage rate terrain with a HELOC

The economic climate is pushing mortgage rates higher, making HELOCs a worthy alternative for those looking to access additional funds without refinancing their first mortgage. With its lower initial costs and flexible repayment structure, a HELOC caters to the financial needs of homeowners in a fiscally prudent manner.

The decision to opt for a HELOC should come after a thorough examination of your financial situation and long-term goals. It’s advisable to consult with a financial advisor to determine if a HELOC is the right choice for you in the current market conditions.

About the Author

Emily Phelps

Emily Phelps, CCUFC

Certified Financial Counselor

Emily joined EastRise in 2015, moving between teller, member service, and consumer lending before her passion for discovering financial solutions led to her transition to the Financial Counselor position. In this role, Emily reads credit reports, does budget planning, and strategizes money and debt management to help members on their path to financial possibilities. She loves reducing financial stress for members and helping them reach their long-term goals.

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