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Why Some People Are Getting Home Equity Loans Instead of Moving Right Now – NextAdvisor

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Key Takeaways

  • Home equity loan and line of credit (HELOC) rates held steady this week.
  • The main driver of increases in interest rates for home equity loan products is the Federal Reserve, which is expected to make its next rate hike in late September.
  • Home equity products have grown in popularity due to rising mortgage rates and the increased popularity of remodeling as homebuying becomes less affordable.

A challenging housing market has homeowners taking a second look at their current one – and turning to a home equity loan or line of credit to make it better.

Just like first-time homebuyers, existing homeowners who might consider an upgrade with a new home purchase are also facing high prices and rising mortgage rates.

“Usually one of the motivations for people to move is looking for a bigger, nicer home,” says Rob Cook, vice president for marketing, digital, and analytics for Discover Home Loans. With those homes becoming less affordable, demand for remodeling is increasing – along with different ways to finance it.

Because of high home prices, homeowners have record levels of equity in their homes, and they’re increasingly tapping it using home equity loans and lines of credit (HELOCs) to finance home improvement projects. High mortgage rates make tapping that equity through a cash-out refinance less appealing.

“You may be better off actually using the equity in your home,” Cook says. “You can maintain the low interest rate on your primary mortgage by getting a second lien loan and use that equity in your home to finance a project in the home that you currently have.”

Financing a remodeling project to turn your current home into your dream home is one alternative in a housing market that some experts say is facing a “housing recession,” Cook says. “That’s one of the things that we’re seeing in the marketplace and that may also cause some of the demand to lower for new homes or existing homes.”

Here are the average home equity loan and HELOC rates as of Aug. 31, 2022: 

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Source: https://time.com/nextadvisor/loans/home-equity/average-heloc-home-equity-loan-rates-september-1-2022/

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Loan Type This Week’s Rate Last Week’s Rate Difference
$30,000 HELOC 6.53%