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Home equity loans and lines of credit (HELOCs) are back.
When mortgage rates were below 4% the past two years, it made a lot of sense to refinance your mortgage and get some money out that way if you wanted to turn some of the equity in your home into cash.
Now, the average rate on a 30-year fixed mortgage is above 5%, and experts say it no longer makes sense to ruin the good rate you might have on your main home loan to do a cash-out refinance. “Why would you want to disrupt that? You wouldn’t,” says Jim Albertelli, CEO of Voxtur Analytics, a real estate technology company.
Instead, there are other ways to get at the equity built up in the home. “What you’d want to do is use some of that equity in your home and do it through a [home equity loan] or a home equity line of credit and tap into that for home improvement or whatnot,” says Albertelli.
Home equity loans and lines of credit (HELOCs) are often called second mortgages because you’re borrowing against the value in your home not covered by your first mortgage. They haven’t been popular for years, in part due to low mortgage rates and in part due to the loose lending practices involving them that helped precipitate the foreclosure crisis 15 years ago. But mortgage rates aren’t that low anymore and home equity lending is far more tightly regulated now, leading to a resurgence, experts say. Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans, says the market is up about 50% year-over-year.
“This product has been unloved for 15 years,” says Vikram Gupta, head of home equity at PNC Bank. “Is it now the return of home equity?”
Make sure you get a good rate on these products if you want to take advantage of them. Here’s what four experts predict about home equity and HELOCs for 2022.
Experts Predict Home Equity Loan and HELOC Rates Through 2022
Vikram Gupta, head of home equity at PNC Bank
For HELOCs, the variable rate usually tracks the prime rate, which follows changes to short-term rates by the Federal Reserve, Gupta says. “That piece of the equation, rates will go up. It’s a variable rate. We’re …….