If you’ve been looking to borrow money in recent years, there have been few cost-effective ways to do so. Whether it was for a mortgage, a personal loan or simply via your credit card, rates have been higher than usual thanks to a combination of elevated inflation and a higher federal funds rate designed to tame it. But now that inflation has fallen significantly, interest rate cuts are back in play. And this has and will continue to affect borrowers, particularly those who use their homes to borrow equity. 

While a home equity loan has generally been the smart way to do so in recent years, in today’s evolving rate climate, a home equity line of credit (HELOC) is becoming more favorable. And as HELOC rates drop, more homeowners should consider turning to this particular product to help make ends meet. Below, we’ll break down three reasons why you should consider opening a HELOC now.

Start by seeing what HELOC rate you’d be eligible for here.

Why you should open a HELOC as interest rates are dropping

The average HELOC interest rate was 9.26% earlier this week. Now it’s 8.94%. And it could drop much further and faster in the weeks and months to come. Here, then, are three major reasons why you should consider opening a HELOC right now:

A lower rate than the alternatives

While rates should start coming down across products, they’ll be dropping from different levels and at different paces. And when stacked up against popular alternatives like credit cards (with average rates close to a staggering 23% now) and personal loans (averaging close to 13% currently), HELOCs became the clear choice. Simply calculate the numbers over 10-year and 15-year repayment periods and match them against the alternatives to see how much you’d save in dollars and cents. The difference is substantial.

Start exploring your HELOC options online now.

The inherent potential for that rate to fall further

A fixed interest rate is preferential for borrowers when interest rates are climbing. However, a variable one is better when interest rates are falling. So, now that interest rates were cut earlier this month — and with the likelihood that they will be reduced again in November and December — a HELOC’s advantages truly stand out. That’s because a HELOC comes with a variable interest rate subject to change, and likely decline, monthly. So that 8.94% could drop again in October, November and December and borrowers won’t need to take any action for it to do so — it’ll adjust automatically.

Additional savings opportunities

Not only will home equity borrowers save with a HELOC when compared to the alternatives and by having the rate potentially drop each month, but they’ll also save by not having to pay for the expense of refinancing to get that lower rate. Home equity loans have fixed rates that will cost borrowers 1% to 5% of the total loan value if they want to refinance to a lower rate. However, borrowers can save those costs by opting for a HELOC instead. And with the potential for rates to fall numerous times soon, that could add up to significant savings that you otherwise may have had to pay with a home equity loan.

The bottom line

As rates fall and the economy adjusts, the benefits of some borrowing products will wane while others will increase. A HELOC falls in the latter category. Thanks to an already lower interest rate than some popular alternatives, the likelihood of that rate falling further in the near future and the savings opportunities presented by not having to refinance to secure a lower rate, a HELOC could make sense for homeowners in need of extra financing now. But remember that your home serves as collateral when borrowing it’s equity, so only apply for a line of credit that you know you can easily afford to repay.