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HELOC Trends and Alternatives in 2024

Home equity lines of credit (HELOCs) offer a flexible way to access the equity you’ve built in your home. With interest rates expected to drop in 2024, variable-rate HELOCs might remain a popular option for homeowners who need to borrow money. However, it’s essential to consider the pros, cons, and alternatives before applying for a HELOC. In this article, we’ll explore the latest trends, benefits, and drawbacks of HELOCs, and provide you with alternative financing options.

5 HELOC Trends in 2024

Although mortgage rates have decreased since their peak in late 2023, they’re still higher than the sub-3% rates available several years ago. Using a HELOC for renovations and upgrades could be appealing, particularly because HELOCs tend to have variable rates and interest rates are expected to drop in 2024. Here are some trends we’re seeing at the start of 2024:

• Increased Usage: The total number of open HELOC accounts has been rising since mid-2023, although there are still 1.7 million fewer HELOCs today than at the start of the pandemic.
• Rising Balances: Overall, balances on HELOCs have steadily increased since 2021, with the average HELOC balance reaching $42,139 in Q3 2023.
• Higher Credit Limits: HELOC limits can increase as homeowners pay down their mortgages and their home values rise. HELOC limits increased by $24 billion overall in Q4 of 2023.
• Fraud Concerns: The increasing popularity of HELOCs has attracted fraudsters. It’s crucial to learn how to protect yourself from HELOC fraud.
• Introductory Rate Offers: Some lenders are advertising introductory annual percentage rate (APR) offers, which might benefit borrowers if interest rates drop during the promotional period.

Pros and Cons of HELOCs in 2024

There are many reasons to consider a HELOC if you have equity in your home and need to borrow money, but they also have drawbacks and aren’t a great fit for every situation.

Pros

• Potential Rate Drops: Many HELOCs have variable interest rates that could decrease if the federal funds rate drops in 2024.
• Introductory Offers: You might receive a temporarily lower rate on your draws for the first six to twelve months, aligning with potential rate drops.
• Lower Interest Rates: HELOCs tend to offer lower interest rates than credit cards and unsecured personal loans.
• Tax Benefits: The interest you pay on a HELOC might be tax-deductible if you use the money to substantially improve your home.

Cons

• Uncertain Rates: There’s no guarantee that interest rates will drop. If rates stay flat or increase, your HELOC could become more expensive.
• Housing Price Risks: If housing prices drop, you might owe more on your mortgage and HELOC than your home’s current value.
• Collateral Risk: HELOCs use your home as collateral, putting your house on the line for additional debt.

Is a HELOC a Good Idea?

If you’re considering different financing options, a HELOC might be a good idea if:

• You have a low loan-to-value (LTV) ratio, which could help you qualify for a lower interest rate.
• You believe interest rates will drop, making a variable-rate loan a potentially good option.
• You’re financing a home improvement project, as the interest payments may be tax-deductible.
• You want a credit line for emergencies, provided you can find a HELOC with low or no closing costs and fees.

However, HELOCs might not be the best fit for some expenses, such as vacations or investments. Additionally, using a HELOC to consolidate credit card debt could lead to foreclosure if you fall behind on payments.

Alternatives to HELOCs

Depending on your financial situation and how you plan to use the money, you might want to consider other types of credit. Here are four options:

Home Equity Loans

A home equity loan is an installment loan that uses your home as collateral. These loans tend to have fixed interest rates and could be a better option if you need the entire loan amount upfront.

Cash-Out Refinancing

Cash-out refinancing involves refinancing your mortgage, borrowing more than your outstanding balance, and keeping the difference as cash. This option might not be suitable if you already have a low-rate mortgage.

Personal Loans

Personal loans are unsecured installment loans that don’t require collateral. They tend to have fixed interest rates and no closing costs, making them a viable alternative to HELOCs.

Credit Cards with Introductory Offers

For smaller expenses, a credit card with an introductory 0% APR offer on purchases or balance transfers might be a good option. These cards can help you manage big expenses without accruing interest during the promotional period.

Contact O1ne Mortgage for Expert Mortgage Services

At O1ne Mortgage, we understand the complexities of home financing and are here to help you navigate your options. Whether you’re considering a HELOC, home equity loan, or another type of credit, our team of experts is ready to assist you. Call us today at 213-732-3074 for personalized mortgage services and advice.

Frequently Asked Questions

Will HELOC Rates Go Down in 2024?

While many experts predict that interest rates will drop in 2024, there’s no guarantee. It’s essential to stay informed and consider both variable and fixed-rate options.

Are HELOC Rates Fixed?

Most HELOCs have variable interest rates, but some lenders offer fixed-rate HELOCs or allow you to convert your variable-rate draw into a fixed-rate loan.

How Do I Qualify for a HELOC?

Qualifying for a HELOC typically requires having sufficient equity in your home, a good credit score, and a low debt-to-income ratio. Lenders will also consider your employment history and income.

Monitor Your Credit and Financing Offers

Your credit history and score can greatly impact your financing options and offers. Regularly monitor your credit report and score to stay informed and improve your chances of qualifying for the best rates. Experian offers free credit report and FICO® Score☉ tracking, along with personalized loan and credit card offers based on your unique credit profile.

For more information and expert mortgage services, contact O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions for your home and future.

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