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Is a HELOC or home equity loan better with inflation rising?
Inflation is on the rise again. That was the big economic news on Wednesday when the Bureau of Labor Statistics released its latest inflation reading. The October inflation rate moved to 2.6%, up from 2.4% in September, and is now more than half a percentage point above the Federal Reserve’s target 2% goal. While not a step in the right direction, it’s too soon to tell if the rise was an indicator of additional economic pain ahead or a temporary issue to be resolved in the months to come.
That noted, a rise in inflation may give borrowers pause, particularly if they’re considering borrowing from their home equity with a home equity loan or home equity line of credit (HELOC). While they operate in similar ways, these products don’t function identically. As such, it’s worth considering which of the two may be better with inflation rising again. Below, we’ll break down what to know.
Start by seeing what home equity loan rate you could qualify for here.
Is a HELOC or home equity loan better with inflation rising?
Everyone’s financial situation is different so it’s difficult to say which of these two options are “better” right now with inflation ticking up again. That said, there’s a compelling case to be made for home equity loans in this specific climate. Here’s why:
Home equity loans have lower interest rates
If you’re looking for the very cheapest home equity borrowing option now, home equity loans are the way to go. While close to what HELOC rates are, they’re still less expensive, averaging 8.41% now versus the 8.61% HELOCs come with. While that may not appear to be a major difference on paper, it can result in significant savings over the term of the loan, particularly considering the common repayment period lengths of 10 and 15 years. So, first, calculate the difference to determine which is more affordable for your situation. And don’t forget the different interest rate structures each product comes with.
Learn more about your home equity loan options here.
HELOC rates are variable and subject to rise again
As mentioned above, it’s premature to make any major proclamations about the future of inflation. It could fall again. If it doesn’t, however, HELOCs could become problematic. That’s because these products have variable interest rates that change monthly.
That’s a unique advantage when inflation – and interest rates – are cooling, as they’ve been this fall. But it’s a unique disadvantage when the opposite occurs, as may be likely in the weeks ahead. So, not only are home equity loan rates lower but they’re fixed, meaning that the lower rate you lock in now won’t adjust should inflation continue to rise. And that’s something that can’t be said for HELOCs.
You’ll have peace of mind
Sure, inflation could continue to drop this month and in the months ahead, making concerns over the latest reading vanish. But it could also rise again and cause interest rate adjustments. No one knows right now and that can be stressful for those borrowers with products that have variable interest rates.
By opening a fixed-rate home equity loan, however, you can take the stress of the equation and have peace of mind knowing exactly what your rate and your payment will be each month. And, if interest rates fall so dramatically in the future that it’s worth taking action, you could always refinance your home equity loan to the prevailing lower interest rate at that point.
The bottom line
The decision between a home equity loan and a HELOC is a personal one, especially now as inflation is rising again. That said, there’s a compelling argument to be made for opening a home equity loan. But you must weigh all of your options closely, particularly for home equity products that utilize your home as collateral. By carefully considering your options (and calculating your costs) you’ll better position yourself for financial success, both now and over the full repayment period.
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Multiple people hurt after driver plows through Texas mall; suspect shot, killed by police
A truck driver drove through a mall in Killeen, Texas, Saturday night, striking several people and injuring at least five, authorities said. The suspect was shot and killed by law enforcement.
The situation unfolded at around 5 p.m. local time when an officer called in a suspected drunken driver, Texas Department of Public Safety Sgt. Bryan Washko told reporters in a briefing Saturday evening. Killeen is located about about an hour north of Austin.
A Texas DPS trooper located the vehicle and followed it off of the highway and into the parking lot of the Killeen Mall. The truck then drove through the front glass doors of a JCPenny and continued inside, striking several people, Washko said.
“The trooper and the Killeen police officer continued on foot after this vehicle, which was driving through the store actively running people over. He traveled several hundred yards.” Washko said.
The suspect was shot and killed by law enforcement, Washko said, disclosing that officers from five different agencies, including Texas DPS and the Killeen Police Department, “engaged in gunfire to eliminate this threat.”
The suspect’s name was not immediately released.
At least five people ranging in age from 6 to 75 were hurt, Washko said. Their conditions were not confirmed. Four were taken by ambulance to area hospitals, and one person self-transported.
Washko said that the vehicle was still inside the mall Saturday night. He said that the area was secure, but urged the public to stay away from the mall.
The Texas Rangers Division will be conducting an investigation
Texas DPS will lead the investigation into the incident, the agency said. The Texas Rangers Division, which is part of Texas DPS, will also be involved.