Why a HELOC is worth opening this July

If you’re ever looking to borrow money, you won’t have to look far for a way to do so. With options ranging from credit cards to personal loans and more, there’s no shortage of ways to borrow right now. But what about those who need a large amount of money, perhaps in the five- or six-figure range? That’s when it becomes a bit more difficult. If you’re a homeowner, however, you’ll have a valuable and affordable resource at your disposal: your home equity. Average home equity levels have been consistently rising in recent years, hitting a new high in early June. Right now, the median homeowner has an average of around $300,000 worth of equity to potentially utilize.

And there are two primary ways they can do so if they prefer to avoid a cash-out refinance or reverse mortgage: home equity loans and home equity lines of credit (HELOCs). A HELOC, in particular, could be an attractive option worth pursuing. Interest rates on the product are down by more than 1.5 percentage points from where they were last September, making them one of the more cost-effective ways to borrow money right now. But there are multiple, timely reasons why a HELOC could be worth opening this July. Below, we’ll examine three of them. 

Start by seeing how much equity you could borrow with a HELOC here.

Why a HELOC is worth opening this July

Not sure if a HELOC is the smart way to borrow money this July? Here are three reasons why it’s worth exploring right now:

The approval process may be quicker than the alternatives

Unsecured debt types, in which no collateral is offered, may be less risky. But the approval process may also be lengthier, particularly if you’re looking to borrow a $100,000 personal loan, for example, or requesting a credit card limit increase into the five – or six-figure range. But a HELOC doesn’t come with those same limitations as lenders can easily determine how much you have to borrow. And because the home is collateral here, they have fewer concerns about letting you withdraw from it. 

Still, with your home on the line, it makes sense to be strategic in your approach. But if you can manage the repayments with ease, it’s likely worth pursuing and you may be surprised at how quick and painless the approval process is compared to your alternative borrowing options.

Get started with a HELOC online today.

You’ll position yourself for rate cuts to come

HELOC interest rates are variable, which can be a significant factor when interest rates are being increased, as was the case in recent years, to tame inflation. But that variability can be beneficial when rate cuts are issued, as HELOC borrowers have seen since the Federal Reserve started reducing rates last fall. 

Existing HELOC borrowers didn’t have to take any action to exploit those reductions as rates on HELOCs change monthly for borrowers. And with an approximate 20% chance of a Fed rate cut in July and a more than 90% chance of a Fed rate cut in September (according to the CME Group’s FedWatch tool), borrowers who get started with a HELOC now can position themselves well for rate cuts to come in the weeks and months ahead, making their line of credit less expensive over time.

You’ll only pay interest on what you use (to start)

Unlike a home equity loan, in which the funds will be disbursed in one lump sum and repayments on that loan will be expected to be made immediately, a HELOC works a bit differently. You’ll only pay interest on what you use. So, for example, if you secured a $20,000 HELOC but only used $2,500, you’d only be responsible for paying back the $2,500 and, for a certain period, you can make interest-only payments (usually for the initial 10-year draw period, approximately). 

All of this flexibility is particularly relevant this July, with the economy still in a state of transition, with interest rate cuts likely (but with rates still high) and inflation still a concern (albeit a declining one). Being tied to a large, monthly payment each month may not be ideal right now. Fortunately, you won’t have to be if you use your HELOC judiciously.

The bottom line

With an approval process that may be speedier than it would be with alternative borrowing sources, a product well-positioned to exploit rate cuts to come and the flexibility of knowing that interest-only payments will be required on just the amount of equity utilized (not the full line of credit), a HELOC could be your optimal borrowing choice this July. Just be sure to shop around for rates and lenders (you don’t need to be locked in with your current bank) to improve your chances of finding a HELOC with the lowest rate and best terms.