CBS News
Does a HELOC or a home equity loan make more sense right now?
Getty Images
The economy is in a bit of a transition. Inflation has cooled considerably, and with the Federal Reserve recently cutting rates, the costs of borrowing have decreased, too. Rates on home borrowing products, in particular, are seeing an impact — including home equity loans and home equity lines of credit (HELOCs).
But while these two options are both getting more affordable, that doesn’t mean they’re a good fit for every homeowner. Below, we’ll break down when experts say a home equity loan makes sense now — and when you might want a HELOC instead.
Considering access your home equity? See what rate you qualify for here now.
Does a HELOC or home equity loan make more sense right now?
Nor sure which of these options is best for you in today’s unique economic climate. Then consider these factors:
If you want to ride the low-rate wave: HELOC
HELOCs usually have variable rates, so the rate you get right now will likely change over time. That’s not great in times when rates are rising, but when interest rates are expected to fall? Things can only improve.
“They’re tied to the prime rate, which can be super beneficial during periods of low rates,” says Clint Jordan, a real estate agent and founder of Mil-Estate Real Estate Network.
This hasn’t been the case in recent history. As Darren Tooley, a loan officer at Union Home Mortgage, explains, “Home equity loans have been considered a better alternative than HELOCs for the last couple of years. Now that we anticipate a rate-cutting cycle by the Fed, a HELOC might be a better option since every time the Fed cuts rates, the rate on your HELOC should go down accordingly.”
See what HELOC rate you’d be eligible for here.
If you have one specific expense you need to cover now: Home equity loan
A home equity loan might be the right choice if you have a single large expense you need to cover soon. It could be a home or car repair or it might be an unexpected bill or medical cost. Whatever it is, a home equity loan can give you a large lump sum to cover it.
“If you need a large lump sum for a specific expense, a home equity loan might be the better choice,” says Debra Shultz, vice president of lending at CrossCountry Mortgage. A HELOC, on the other hand, is better “If you need slow access to funds over time,” she says.
Just be aware: Since home equity loans are usually fixed-rate products, the rate you get when you apply for your loan will be your interest rate for the entire loan term. That means you won’t benefit from any additional rate cuts if the Fed opts for them, unless you move to refinance.
John Aguirre, a mortgage originator at Loantown, says don’t fret, though. “The changes in rates are not going to make a noticeable impact on monthly cash flow for the majority of borrowers. You can always refinance.”
If you need low payments right now: HELOC
HELOCs work a little differently than traditional loans. Instead of making full interest and principal payments from the start, you instead pay only interest for the first 10 years (this is called the draw period). This makes them great for consumers who need cash but don’t have the funds for a huge monthly payment at the moment.
“You borrow only what you need, when you need it, and pay interest only on what you borrow,” Shultz says.
If you want stability: Home equity loan
As home equity loans are usually fixed-rate loans, more risk-averse consumers are better served by a home equity loan in most scenarios.
“Fixed-rate home equity loans provide much more certainty than variable-rate HELOC loans because homeowners can know their monthly payments before taking out the loan,” Tooley says. “This allows the borrower to budget and know exactly what to expect monthly.”
HELOCs don’t offer this kind of predictability. And while they might allow you to take advantage of lower rates now, market conditions can change fast. When that happens, it could mean rising payments instead. “This can cause concern for many people,” Tooley says.
Run the numbers
If you’re considering tapping your home equity, it doesn’t hurt to consider all your options — home equity loans, HELOCs and cash-out refinancing. Just reach out to a loan officer and have them run the numbers on all three scenarios to see which fits your needs and budget best. You can also use a broker to help you shop around for the best rate, too.
Americans are expected to spend more money heating their homes this winter than on holiday gifts, according to new research.
The elevated cost of staying warm indoors amid cold outdoor temperatures comes after an unusually hot summer, that led to households spending bigger shares of their budgets on cooling costs, compared with previous years, according to a report from the National Energy Assistance Directors Association (NEADA).
On average, spending on home heating this winter is projected to increase by 8.7% to $941, up from $866 last winter. The increased costs are attributed in part to both expected colder temperatures in the Northeast and Midwest states.
The new average expenditure on heating costs outpaces the $902 the average household is expected to spend on Christmas presents this year, according to a forecast from the National Retail Federation.
What’s driving up home heating costs?
There are different ways to keep residences warm. Families that use electricity to heat their homes are expected to face the largest increase in costs — more than 14% — which will bring the total up to $1,189 from $1,040 from mid-November through mid-March, which NEADA considers to be the winter period.
Driving up prices is the rising cost of updating and maintaining the electric grid. Plus, colder weather is expected to lead to increased consumption.
“It’s colder, and the cost of electricity is up as the grid is rebuilt. So we’re seeing both higher prices and greater usage,” NEADA Executive Director Mark Wolfe told CBS MoneyWatch.
Natural gas, propane and heating oil cost differences
Natural gas and propane users are also expected to be hit with bigger bills this winter. Heating costs for natural gas are up just over 3%, for an average cost of $634 for the winter period, compared with $615 for 2023-2024. Costs are expected to rise only modestly in line with wholesale prices.
Propane costs are up 4.4%, with families expected to spend an average of $1,231 heating homes, up from $1,179 last season.
Heating oil costs, by contrast, have declined 2.7%, which means average spending this winter will be $1,518, down from $1,560 last winter.
Early start to the season
November was colder than usual, with temperatures dropping prematurely after a “very expensive summer” of heat waves straining cooling resources, said Wolfe.
Blame climate change for the big swings in temperature, he added.
“Weather conditions can be very unpredictable even though over time, winters are getting warmer and summers are getting hotter. It’s not a straight line, and for consumers, it’s quite upsetting because higher utility bills are coming right before Christmas,” Wolfe said.
Steps to take now
There are steps consumers can take to help keep a lid on home heating costs.
Wolfe urges people to have their thermostats serviced now, before the coldest temperatures of the season roll in. That way, families won’t be on the hook for an emergency repair if their thermostat breaks in the middle of a cold front. A tune-up will also help heating systems run more efficiently, he said.
Always close the furnace flue, or else it will lead heat outside the house, advises Wolfe. Lastly, manually turn down the heat at night, if you can, to save up to 10% on your energy bill.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
There’s still time to become a mega-millionaire for Christmas, but lady luck will have to be on your side.
No one matched Mega Millions‘ all six winning numbers last Tuesday, and the jackpot now stands at $862 million ahead of Friday night’s drawing.
The jackpot has been rolling since it was last won at $810 million in Texas on Sept. 10.
If there is a sole winner, they have a choice between an annuity, with an initial payment and then 29 annual payments, or a one-time lump sum payment. Most winners choose a cash payout.
For Friday night’s drawing, that would be an estimated $392.1 million before taxes.
If won at that level, it would be the largest prize ever won in December and the seventh largest in Mega Millions history.
According to Mega Millions, 13 jackpots have been won during December since the game began in 2002. Three were won in the days after Christmas, while the other 10 were won before Christmas. There has never been a jackpot win on Christmas Day, although over the years drawings have been conducted on Christmas six times – in 2007, 2009, 2012, 2015, 2018 and 2020.
Mega Millions drawings are held on Tuesday and Friday, tickets cost $2. The odds of winning the jackpot are about 1 in 303 million.
Here’s how much more it will cost to heat your home this winter
18-year-old from North Dakota charged in north Minneapolis shooting that killed teen girl
scrap parkway plan, keep I-94 between St. Paul and Minneapolis as a freeway
Here’s how much more it will cost to heat your home this winter
18-year-old from North Dakota charged in north Minneapolis shooting that killed teen girl