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Will a home equity loan or HELOC be better for May?
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Do you need access to funding to cover a large expense? Whether you need to make home renovations, pay off high interest debt or cover any other of an unlimited number of possible expenses, you may be thinking about leaning on your home equity.
After all, if you’re like the average American homeowner, you have about $299,000 worth of equity in your home. And, on average, American homeowners can maintain a comfortable 20% stake in their homes, even after tapping into $193,000 worth of that equity.
But, if you’re thinking about accessing your equity, it’s important that you carefully consider your options. Home equity loans and home equity lines of credit (HELOCs) are two common home equity borrowing options. But which of these is better in today’s economic environment? That’s what we will break down below.
Compare your home equity borrowing options now!
Will a home equity loan or HELOC be better for May?
Home equity loans are fixed lending products. So, when you take one out, you can access your equity in one lump sum with a fixed interest rate and payment.
HELOCs are a variable home equity lending product. These lines of credit come with a draw period in which you’re able to access your equity up to a predetermined limit while typically making interest-only payments. Following the draw period, you’ll enter the repayment period, during which you’ll make payments toward interest and your principal balance. However, because the interest rates and payments on HELOCs are typically variable, your payments may rise or fall over the life of your credit line.
But, in today’s economic environment, a home equity loan may be your better option. Here’s why:
Home equity loans usually come with lower interest rates than HELOCs
In today’s high interest rate environment, it’s important to save on interest when and where possible. Home equity loans may give you a way to do so when compared to HELOCs. In fact, the average home equity loan interest rate is currently 8.63%. The average HELOC interest rate is just shy of a half-point higher, at 9.10%. Though a 0.47% difference may not seem like much, it can amount to significant savings – especially if you plan on tapping into a large amount of your equity.
Take advantage of the competitive interest rates that home equity loans typically come with today.
HELOC rates could rise ahead
The difference between fixed and variable rates is an important one to consider in today’s inflationary environment. That’s because rate hikes are the Federal Reserve’s most powerful weapon against inflation. And with inflation coming in hot so far in 2024, there’s a possibility that the Fed could increase its federal funds rate soon (the benchmark rate consumer interest rates are often based on).
“Rising inflation is concurrent with rising interest rates,” explains Alex Blackwood, CEO and co-founder of the real estate investment platform, mogul club. “A home equity loan offers a fixed interest rate.” That fixed interest rate means your rate will stay the same regardless of the state of inflation and any moves the Fed may take to combat it ahead.
“The interest rate on a HELOC is flexible, and inflation may cause it to rise,” says Blackwood. That could become a painful reality in today’s inflationary environment.
Home equity loans are easier to budget for than HELOCs
Budgeting for fixed expenses can be easier than budgeting for variable costs. That’s yet another reason home equity loans may be better than HELOCs against today’s economic backdrop.
As inflation persists and prices continue to rise, budgeting may already be getting more difficult than it was in the past. But, adding a payment that has the potential to change over time, like a HELOC payment, to your budget only adds to that difficulty.
What if your HELOC payment does rise ahead? Will your budget be able to absorb the additional cost? If you choose a home equity loan over a HELOC, your payment will be the same every month, regardless of any changes to overall interest rates.
Find out how affordable a home equity loan could be today.
The bottom line
HELOCs and home equity loans are both valuable financial products. But, considering today’s economic landscape, a home equity loan may be your better option this May. Not only do home equity loans typically come with lower interest rates than HELOCs to start with, those interest rates are usually fixed. On the other hand, variable HELOC interest rates may rise ahead and variable payments could be difficult to budget for. Compare your home equity loan options today to take advantage of fixed rates and payments when you tap into your equity.
A tornado touched down in the Northern California town of Scotts Valley near Santa Cruz Saturday afternoon, flipping cars and knocking down power lines, according to authorities.
Scotts Valley is a small town about six miles north of Santa Cruz in Santa Cruz County a short distance off of State Highway 17.
The incident happened at around 1:40 p.m. around the 200 block Mount Hermon Drive. Scotts Valley police initially posted an alert on social media advising residents to avoid the area following a multi-vehicle accident that had multiple power lines down and completely blocked the road in all directions.
Police later posted an update saying that witnesses reported it was not an accident “but rather a possible tornado” that touched down near the Target store at 270 Mount Hermon Drive “and threw multiple cars off the road.”
Police did not provide any specific details on injuries.
The National Weather Service had issued an severe thunderstorm warning in the area a short time before the tornado.
Severe Thunderstorm Warning continues for Scotts Valley CA, Capitola CA and Soquel CA until 2:00 PM PST pic.twitter.com/guLKEZRLeJ
— NWS Bay Area 🌉 (@NWSBayArea) December 14, 2024
A later post on X by the Bay Area office of the National Weather Service confirmed that a tornado had occurred based on “video, photos, firsthand accounts, and radar signatures”
The post noted that a NWS Survey team will further investigate the incident to provide a ranking.
The tornado was just the latest extreme wind event connected to the powerful storm that passed through Northern California overnight. The first-ever tornado warning in San Francisco was issued by the National Weather Service early Saturday morning shortly before 6 a.m., alarming residents with a cell phone alert that woke many people up, according to reports on social media.
While that tornado did not materialize, high winds were causing impacts across the region, including a city-wide power outage in the North Bay city of Novato and a full closure of Interstate 580 in both directions at the San Joaquin and Alameda county line after a multiple-vehicle collision involving a big rig due to high winds.
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San Francisco residents were woken up by a tornado warning early Saturday morning during a powerful storm system that battered the region with heavy rain and wind.
It was the first-ever tornado warning for San Francisco, but not the first tornado, cited CBS News Bay Area meteorologist Paul Heggen.
The National Weather Service issued the warning for northern San Mateo County and parts of downtown San Francisco, just before 6 a.m. until 6:15 a.m.
According to the NWS, there was a cyclonic signature on the radar that had produced enough rotation signature to prompt the warning.
“The radar scan at 5:52am clearly shows a “hook echo” offshore — that’s the signature we look for to identify a developing tornado. This feature was embedded within a broad area of very heavy rain, but it still stands out,” Heggen explained.
Notice the cloud-to-ground (well, cloud-to-ocean) lightning strike near the hook echo. That confirms the instability present in the atmosphere — such strikes are only possible with enough vertical motion to separate charged particles (“hydrometeors”) within the storm. 4/15 pic.twitter.com/NY3RSewd6j
— Paul Heggen @paulkpix.bsky.social (@PaulKPIX) December 14, 2024
The NWS Bay Area said the warning was over for San Francisco at 6:07 a.m. And let the tornado warning expire at 6:15 a.m.
The warning led to a flurry of social media posts from residents who were woken up by the alert on their cell phones. It was being reported as the first-ever tornado warning issued for San Francisco.
There was also a special alert issued for a possible water spout on San Francisco Bay in the area of the Bay Bridge that expired ten minutes after the tornado warning.
While the strongest part of the system has passed, isolated severe thunderstorms remain possible for parts of the Bay Area through the morning, the National Weather Service said.
The risk of a severe storm is marginal, and the NWS said it will only last through Saturday morning. According to PG&E, the storm conditions caused power outages for thousands of people in the Bay Area.
