The Return of the HELOC: What Is It and How Can You Benefit From It?

 What is a HELOC? Why is getting a HELOC more beneficial for homeowners right now? 

Ryan Haley, broker and owner of Atlantic Shores Sotheby’s International Realty, discusses everything you need to know about HELOC and why it’s the option for many homeowners in this current market situation. 

HELOC is a home equity line of credit, and it will most likely make a comeback in the coming months and years.

With interest rates rising relatively quickly since the start of the year, the refinance boom for many mortgage lenders has come to an end. It doesn’t make sense when many homeowners throughout the country have locked into an interest rate that may be in the upper 2% or lower 3%. 

With 30-year fixed rates in the 5% to 5.5% range, doing a cash-out refinance does not make sense as the monthly payment is going to be so much higher. 

At the same time, we’ve never been in a position where there’s more equity in the homes in America. Homeowners are very fortunate to have high home values due to high equity in their homes. These homeowners would love to tap into that to take some of that cash to maybe pay off some loans such as student loan debt, or to buy a second home at the beach which we see to be very popular. They could also use the cash to do renovations to their home. 

Many people would want to access that cash in the form of a cash-out refinance. However, another option that we can expect to be making a return—and could be a better option for you—is a home equity line of credit. 

How Does HELOC Work?

With a HELOC, your current mortgage, mortgage balance, and mortgage interest rate will all stay the same. But you are going to apply for, essentially, a second mortgage in the form of a line of credit. 

So, your mortgage interest rate will stay low with your first mortgage. Then, the HELOC, which is the percent you’re going to take out to access some cash—for debt repayments, renovations, vacation, or to buy a car—will have a little bit higher interest rate. But when you blend the two, it is still a better option as opposed to resetting and going with a higher rate on a cash-out refinance. 

Thus, as we move forward in the next months and years, we expect to see the return of the home equity line of credit or HELOC as homeowners look to access cash from their homes. 

If you have questions about this topic or anything about real estate in the Maryland and Delaware markets, please give us a call and we’ll be happy to answer them.