Earlier this year, the Federal Reserve started increasing interest rates, and additional rate hikes are expected. What does this mean for borrowers? If you currently have a fixed-rate loan, your payments won’t change. If you have a variable rate, on the other hand, your interest rate will go up with rate hikes. This might include rate increases on credit cards and adjustable-rate loans and lines of credit. There are many reasons to access your home equity before rates increase. Here are just a few.
1 Higher interest rates mean higher monthly payments
The biggest reason to access your home equity before rates increase is to lock in a low payment you can count on now. The fixed rates on home equity loans at Benchmark Federal Credit Union are still competitively low, which can provide you with an affordable monthly payment for any expense.
2 Home Equity loans are an affordable way to borrow for major expenses
If you have a large expense on the horizon, such as a major home remodel or repair, a home equity loan might provide you with the most cost-effective way to borrow. After all, the average credit card rate is a lot higher than the average home equity loan rate. As an added bonus, investing in a home improvement project may also increase the value of your home. If you have a big expense in the near future, you may want to consider borrowing now, before rates increase. Important to note; home equity loans can be used for anything at all. Here are nine reasons you may want to tap into the equity of your home:
- Home improvement projects & repairs
- Education expenses
- Debt consolidation
- Paying medical bills
- Weddings & other celebrations
- Funding a vacation
- Make a major purchase
- Starting a business
- Emergency expenses
3 Consolidate high-rate or adjustable-rate late loans into a fixed-rate home equity loan
If you’re struggling with high-rate credit card debt or another adjustable-rate loan, you may want to pay off that debt with a fixed-rate home equity loan now, before interest rates go up again. Refinancing high-rate debt to a lower rate loan makes perfect financial sense. Home equity loan rates are lower than credit cards and other unsecured loans because your property serves as collateral for the loan. This means there is less risk to the lender. A home equity loan will also enable you to consolidate multiple debt obligations into one convenient monthly payment.
While many lenders impose a maximum you can borrow, typically 80 percent to 85 percent of available equity, Benchmark FCU allows qualified borrowers to borrow up to 90 percent of the appraised value of the home. That can be a big help when seeking to consolidate multiple higher-interest debt obligations into a lower-interest home equity loan. To calculate the available equity in your home, simply take the appraised value minus your mortgage and any other liens.
Applying for a home equity loan
Your home equity can be an important financial tool in helping you meet your goals. A fixed-rate home equity loan is paid back in monthly installments, with interest. Your loan payment will remain the same over the entire term of the loan. This means no surprises when the Federal Reserve raises rates.
Just a word of caution. As we mentioned above, when tapping into your home’s equity in the form of a home equity loan, your property is used as collateral. It’s very important to make all payments on time or you may be in jeopardy of losing your home.
If you feel certain you are in a position to make your payments, a home equity loan can be a convenient, low-cost way to borrow large sums at a low rate for many different expenses. Tap for more details or to apply for a Benchmark FCU home equity loan and learn what Benchmark can do for you.
Read more Benchmark FCU blog posts on home equity.