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Home Equity Lines of Credit (HELOC) they have traditionally been a smart way for owners to access a large amount of money for a low cost. This product has been particularly advantageous in recent years, with credit card fees and personal loans both reaching the double digit range. Credit cards, in particular, now have a staggering average interest rate of just under 24%. HELOCs, by comparison, average 8.55% now, nearly three times cheaper than credit cards.
That lower interest rate this is largely due to the fact that the home in question functions as collateral in these loan swaps. As such, borrowers must be strategic in their approach. If they eventually can’t pay back everything that was withdrawn, they could be risking their property in the process. With that understanding, then, it helps to know some HELOC dos and don’ts heading into the new year. We’ll break down four of them below.
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HELOC dos and don’ts for 2025
By understanding these HELOC approaches and mistakes now, homeowners can better position themselves for success in both 2025 and beyond:
Do: Choose it over a home equity loan
Right now, interest rates on home equity loans are slightly lower than HELOCs. But you shouldn’t let an 8.40% home equity loan rate sway you from choosing this option over the 8.55% HELOC. This is because home equity loans to have fixed rates which the owners will have to pay refinance to a minor in the future. But HELOCs change every month on your own And that could mean lower payments soon, if additional rate cuts are issued as expected.
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Don’t: Automatically use your current mortgage lender
There may be a misconception on behalf of homeowners that they assume they need to use the lender they already have their mortgage with to borrow against a HELOC. But this is not the case. So don’t automatically go with your current mortgage lender without first shopping around to see what rates and terms competitors are offering. You might be surprised at the best deal you can secure simply by comparing other lenders online first.
Do: Use it only for certain purposes
A HELOC used for home projects and renovations is smart, as such use could allow you to deduct the interest paid from your taxes. Using it for vacation expenses or buy depreciated assets in 2025, however, is not recommended. After all, you’re using the equity of your most prized asset, so you’ll want to make sure whatever you use it for is actually valuable. Ideally, you can use your HELOC to make home repairs which ultimately makes the value of your home grow even more.
Don’t: Stop controlling the interest rate climate
Just because you’ve secured your financing doesn’t mean you have to stop monitoring the broader interest rate climate. Any number of factors, either by themselves or in combination with others, can cause your rate to go up or down. And if it’s the former, you’ll want to make plans in anticipation of a rate hike before it goes live. So keep monitoring inflation data, unemployment reports, Fed actions (or lack thereof) and more so you can better track how high your HELOC payments could go .
The bottom line
By approaching your HELOC with a strategic and careful approach, and by completing these actions and avoiding others, you can better improve your chances of home equity success, in 2025 and throughout. amortization period.
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