Is It a Bad Time to Get a HELOC? (2024)

FAQs

Is It a Bad Time to Get a HELOC? ›

Is it a bad time to get a HELOC? No. In fact, it could be a very good time. While HELOC rates are higher than they used to be, they are at historically normal levels.

While they're not as popular as they were a year ago, the loans may still be a smart option for some homeowners in need of cash (especially with the average homeowner now sitting on about $300,000 in equity, according to recent data).

But Bankrate's rate survey data shows that, in early 2020, HELOCs became more affordable for a period of over two years. Rates between the two products stayed comparable until November 2023. For the past six months, HELOC rates have remained above home equity loan rates, sometimes by almost a full percent.

Is it difficult to get approved for a HELOC? There's no one-size-fits-all answer, but generally, it's not hard to get a HELOC. If you've paid your current mortgage on time and you have sufficient equity in your home, you may be a good candidate for a HELOC.

Most lenders require you to have at least 15% to 20% equity left in your home after factoring in the new loan amount. If your home's value has not appreciated enough or you haven't paid down a big enough chunk of your mortgage balance, you may not qualify for a loan due to inadequate equity levels.

Home equity lines of credit (HELOCs) let you access the equity you've built in your home with a flexible credit line. With interest rates expected to drop in 2024, variable-rate HELOCs might remain a popular option for homeowners who need to borrow money.

But it also carries risks. With a HELOC, your home is used as collateral, and you could lose it to foreclosure if you fail to make your payments. HELOCs also typically have variable interest rates that can cause your monthly payments to change over time.

It's not a good idea to use a HELOC to fund a vacation, buy a car, pay off credit card debt, pay for college, or invest in real estate. If you fail to make payments on a HELOC, you could lose your house to foreclosure.

HELOCs benefit most from rate decreases. With the Fed looking to lower rates later in 2024, a HELOC may be more beneficial than a home equity loan because the rate could drop more dramatically. Also, with a HELOC, you can draw funds as you need them, and you only have to pay interest on the funds you actually take out.

However, tapping into your equity now doesn't mean you have to pay a high interest rate until you pay the debt off completely. Consider taking advantage of the variable nature of HELOCs or planning to refinance your home equity loan when rates fall rather than waiting to access the cash you need.

What is the monthly payment on a $50,000 HELOC? ›

What is the monthly payment on a $50,000 HELOC? Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $411 for an interest-only payment, or $478 for a principle-and-interest payment.

Home equity loans have fixed interest rates, which means the rate you receive will be the rate you pay for the entirety of the loan term. As of July 31, 2024, the current average home equity loan interest rate is 8.59 percent. The current average HELOC interest rate is 9.18 percent.

Early in the pandemic, several big banks stopped offering HELOCs, citing unpredictable market conditions. It seems that demand for these loans is still low, and few big banks have started offering them again. Plenty of lenders still offer both products, though, so you shouldn't have trouble getting either.

The requirements for a HELOC are straightforward but can be stringent. In most cases, you'll need to have a significant chunk of equity in your home — at least 15% to 20% or more, according to our research. You'll also likely need to have a solid credit history. If your credit is poor, you may not qualify.

But qualifying for a HELOC requires enough home equity, a good credit score, a low DTI ratio, and proof of income. If you don't think you'll qualify for a HELOC or are not sure if it's the right borrowing solution for you, consider alternatives like a cash out refinance, home equity loan, or personal loan.

You'll pay the cost upfront, and your lender may charge an annual maintenance fee to keep your credit line open if you don't use it. But the more significant downside is foreclosure risk. If you use part of your HELOC to cover an emergency and then default on repayment, you could lose your home to foreclosure.

During the early stages of the 2020 financial crisis, several big banks stopped offering HELOCs, citing unpredictable market conditions as the reason.

A serious dip in home values can cause lenders to lower your credit line or freeze it — preventing you from withdrawing more funds — or even demand full repayment. While such changes in your HELOC are unlikely, it's smart to have a backup plan in case you can't withdraw as much money as your lender originally approved.

On the other hand, HELOCs have risks. Variable interest rates can make it tough to budget for repayment, and securing a loan with your house can be risky as you can lose your home.

HELOCs benefit most from rate decreases. With the Fed looking to lower rates later in 2024, a HELOC may be more beneficial than a home equity loan because the rate could go down. Also, with a HELOC, you can draw funds as you need them, and you only have to pay interest on the funds you actually take out.