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Why you should choose a higher HELOC rate over a home equity loan now
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Interest rates on borrowing products have surged in recent years thanks to the pandemic, inflation and multiple hikes to the federal funds rate. But the interest rate climate is evolving again, with recent reports showing a further cooling in the inflation rate (already dramatically lower than June 2022’s 9.1% rate). Inflation hovers just around 3% now and, if it continues to fall, the Federal Reserve could issue its first interest rate cut of 2024.
So borrowers could soon see relief on everything from mortgages to student and personal loans.
Current homeowners in need of extra cash may also consider turning to their existing home equity. With a home equity loan or home equity line of credit (HELOC), owners can gain access to substantial sums of money, often at a much lower interest rate than many popular alternatives. But the interest rates on both products differ, with the average home equity loan rate at 8.60% as of July 10 and HELOCs sitting at 9.17%. And while home equity loans may, on paper, seem like the advantageous option, there’s a compelling argument for choosing the higher HELOC rate now, instead. Below, we’ll break down why.
Start by seeing what HELOC rate you could secure online today.
Why you should choose a higher HELOC rate over a home equity loan now
If you borrowed $50,000 worth of equity with a home equity loan, you’d pay $622.61 each month for 10 years. A HELOC would cost $637.99 monthly, or just over $15 more, during that same period. While that’s not ideal, especially when compounded annually and over the lifespan of the loan, a HELOC could still be worth pursuing now, even with the higher rate. Here’s why:
HELOC rates are variable
HELOC interest rates are variable and set to change, perhaps as often as monthly, depending on your lender and the terms agreed to. This means that rates could adjust upward or downward until you’ve paid back all that you borrowed. While this is a drawback in a climate in which rates are heading upward, it can be a benefit this summer and into 2025, particularly now, when the average homeowner has hundreds of thousands of dollars worth of equity to tap into.
See how much home equity you could use with a HELOC here.
HELOC rates could drop soon
While multiple cuts to the federal funds rate were anticipated this year, thus lowering the rates lenders offer to borrowers, it now appears likely that just one rate cut will be issued in 2024. But that could result in your HELOC dropping, perhaps significantly if the Federal Reserve issues a major cut. So while today’s HELOC rate may be higher than a home equity loan, it could be lower as the rate climate evolves.
Home equity loans will need to be refinanced
An improved rate climate will undoubtedly benefit home equity loans, too. But if you took out a home equity loan in July and rates drop in September or October, you’ll need to refinance your home equity loan – and pay the costs of refinancing – to lock in that new, lower rate. Refinancing costs could add up quickly and may even negate any savings you can obtain with the lower rate. To avoid this scenario, then, a HELOC may be your better choice this July.
The bottom line
Borrowers looking for inexpensive ways to access money will need to evolve with the rate climate. For homeowners, this may involve substituting a home equity loan with a HELOC instead. Thanks to their variable rate, the likelihood of rate cuts to come and the added expense of having to refinance a home equity loan to secure the rate a HELOC would adjust to independently, now is a rare time when a higher rate HELOC may be better than a home equity loan. Just be sure to carefully crunch the numbers and consider the pros and cons of both products before acting, as you could jeopardize your homeownership if you fail to pay back all that you have borrowed.
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Wisconsin school shooter was in contact with California man plotting his own attack, court documents say
The shooter who killed a student and teacher at a religious school in Wisconsin brought two guns to the school and was in contact with a man in California whom authorities say was planning to attack a government building, according to authorities and court documents that became public Wednesday.
Police were still investigating why the 15-year-old student at Abundant Life Christian School in Madison shot and killed a fellow student and teacher on Monday before shooting herself, Madison Police Chief Shon Barnes told the Associated Press Wednesday. Two other students who were shot remained in critical condition on Wednesday.
A Southern California judge issued a restraining order Tuesday under California’s gun red flag law against a 20-year-old Carlsbad man. The order requires the man to turn his guns and ammunition into police within 48 hours unless an officer asks for them sooner because he poses an immediate danger to himself and others.
Carlsbad is located just north of San Diego.
According to the order, the man told FBI agents that he had been messaging Natalie Rupnow, the Wisconsin shooter, about attacking a government building with a gun and explosives. The order doesn’t say what building he had targeted or when he planned to launch his attack. It also doesn’t detail his interactions with Rupnow except to state that the man was plotting a mass shooting with her.
CBS’ San Diego affiliate KFMB-TV reported that law enforcement searched the man’s home Tuesday night after the order was signed by the judge.
Police, with the assistance of the FBI, were scouring online records and other resources and speaking with the shooter’s parents and classmates in an attempt to determine a motive for the shooting, Barnes told the AP.
Police don’t know if anyone was targeted in the attack or if the attack had been planned in advance, the chief said. Police said the shooting occurred in a classroom where a study hall was taking place involving students from several grades.
“I do not know if if she planned it that day or if she planned it a week prior,” Barnes said. “To me, bringing a gun to school to hurt people is planning. And so we don’t know what the premeditation is.”
On a Madison city website providing details about the shooting, police disclosed Wednesday that two guns were found at the school, but only one was used in the shooting. A law enforcement source previously told CBS News the weapon used appears to have been a 9 mm pistol.
Barnes told the AP that he did not know how the suspected shooter obtained the guns and he declined to say who purchased them, citing the ongoing investigation.
No decisions have been made about whether Rupnow’s parents might be charged in relation to the shooting, but they have been cooperating, Barnes told the AP.
Abundant Life is a nondenominational Christian school that offers prekindergarten classes through high school. About 420 students attend the institution.
The Dan County Medical Examiner’s Office identified the two people killed Wednesday as 42-year-old Erin West and 14-year-old Rubi Vergara.
An online obituary on a local funeral site stated Vergara was a freshman who leaves behind her parents, one brother, and a large extended family. It described her as “an avid reader” who “loved art, singing and playing keyboard in the family worship band.”
West’s exact position with the school was unclear.
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