4 HELOC moves experts say to make with rates low

Inflation cooled in March, dropping 0.4 percentage points to 2.4%, according to data from the Bureau of Labor Statistics. This new data shows that inflation is inching closer to the Federal Reserve's target of 2%. The Federal Reserve maintained the federal funds rate in March as part of its efforts to rein in inflation. The drop could be an encouraging sign that more rate cuts are in the future as planned. 

Based on these economic factors, home equity line of credit (HELOC) interest rates dipped below 8% to 7.90% at the start of April. However, after a tumultuous week of stock market volatility deepened economic uncertainty, average HELOC rates increased slightly to 8.0%, according to Bankrate. Despite a slight uptick, HELOC rates remain at a two-year low. These lower rates can make HELOCs an attractive alternative to other borrowing options. We spoke to some home lending experts about the right moves to make with HELOC rates around 8% now.

Start by seeing what HELOC rate you could qualify for here.

4 HELOC moves experts say to make with rates low

Considering a HELOC now? Here are four moves the experts we spoke to recommend making:

Open a HELOC for flexibility 

Home equity line of credit borrowing differs from traditional home equity loans or other types of loans. Borrowers won't receive a lump sum of money. Instead, they'll be approved for a specific line of credit and they can draw from that amount. 

You might get approved for a $50,000 HELOC, but only use $12,000. As a borrower, you only pay interest on that $12,000. While you pay it back, the available credit increases and you can use it again during the draw period. In these uncertain times, a HELOC provides major flexibility. 

"I actually believe that everyone who has home equity should have a HELOC. I don't think that everyone should necessarily use it, but everybody should have the capacity to be able to borrow at the lower interest rate if needed," says Karen Mayfield, national head of originations for Multiply Mortgage, a mortgage broker.

The cost of maintaining a HELOC won't be costly, either. "All it's costing is the annual fee, which is generally $50 to $100, typically a little lower than a credit card annual fee," adds Mayfield. 

A HELOC offers more favorable terms and options than borrowing from other places, such as high-interest credit cards or dipping into other reserves. "Think about what's happened in the last couple of weeks. If somebody had an unanticipated medical expense or they lost their job and the bulk of their reserves were in investments, having to sell stock right now I think would be pretty painful," says Mayfield. 

Though the stock market provided some relief with a subsequent upswing, the only thing certain right now is that uncertainty prevails. Having a Plan B in place and affordable borrowing tools could help if there's a serious economic downturn.

Get started with a HELOC online today.

Consolidate debt

Data from the Federal Reserve Bank of New York shows that Americans are relying more on credit cards. Based on their Q4 data, outstanding credit card balances hit a whopping $1.21 trillion, which is a 4% increase from the year before. Average credit card interest rates have also seen a notable increase at over 20%. 

If you're a homeowner buried in credit card debt, a HELOC could be a smart financial tool to consolidate debt. As HELOC interest rates hover around 8%, you could slash your interest rate and save money over the life of the loan. If you're not in debt but need financing for an upcoming purchase, a HELOC could be a more cost-effective alternative than credit cards or personal loans.

"HELOCs have lower rates because they're secured to a property. So they're less risky when they're secured equity on an asset that you own and so it can be a better way to borrow money for different reasons," says Jordan Heatherly, a home loan specialist at Churchill Mortgage. 

Renovate your home

If you've been delaying necessary or cosmetic renovations to your home, now could be a good time to use a HELOC with more affordable rates. Due to the unique structure of a HELOC, you can do parts of your home piece by piece — at your own pace. 

"We see this a lot with people who renovate their homes. Say that they get a home equity line of credit and renovate a bathroom or kitchen and then they pay that off. If they want to move on to another room in the house or do another piece of renovation, replace the roof, air conditioning, then they have access to those funds again, ongoing versus a normal loan," says Heatherly. 

Pay down your existing HELOC balance 

Current HELOC borrowers can take advantage of lower average interest rates and pay down their balance. While you may only need to pay interest during your draw period, paying more can make financial sense. It's important to check the terms of your agreement first.

"There could be prepayment penalties depending on the lender. But a lot of times, we see that you can pay those off as quickly as you'd like," says Heatherly. HELOC borrowers could benefit from paying down the balance in a couple of ways. 

"It's an opportunity for them to make more payments towards the principal and pay less in interest per month. So it's a great time to do that…At that point, they can just keep the line open and have more capital available," says Heatherly.

The bottom line 

HELOC interest rates are variable, which differs from home equity loan interest rates, which are fixed. As such, they can change at any time. Before the most recent increase, HELOC rates were trending downward. While the exact future of rates is always a guessing game, we know that HELOC rates are still more affordable than in years past. 

Shmuel Shayowitz, president and chief lending officer at Approved Funding, a licensed mortgage bank, notes that opening a home equity line of credit has become more accessible in recent years due to technology. "But those come with a premium for their ease of use and for their quickness. And you're paying a much higher rate to access the convenience," says Shayowitz. 

It's also important for borrowers to look at multiple home lenders and home equity borrowing options before committing to anything. "There are so many banks and options and sources out there that provide home equity loans and lines at very reasonable rates and they shouldn't settle for anything until they really do their research," says Shayowitz.