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Will a HELOC or home equity loan be better this April?
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With the next Federal Reserve meeting scheduled for April 30 — and the next inflation report slated for release on April 10 — many will be hopeful for some economic relief next month. If the inflation report shows a reduction in growth, the Fed may elect to keep interest rates unchanged or even reduce them if they feel confident that inflation is finally cooling.
However, if there is another disappointing inflation report, as there was this month, the Fed’s response may differ.
Against this backdrop, borrowers have limited options. Interest rate hikes have caused the cost of borrowing with mortgages, personal loans and other products to surge in recent years. One cost-effective alternative, however, has been home equity loans and home equity lines of credit (HELOCs). But which will be better this April, a month in which the trajectory of inflation and interest rates could change? That’s what we’ll break down below.
Are you considering tapping into your home equity? See what rate you could qualify for here now.
Will a HELOC or home equity loan be better this April?
Here’s what to consider when looking for a better home equity product in the new month.
Why a HELOC may be better this April
A HELOC operates like a revolving line of credit that allows homeowners to access their existing home equity. Unlike home equity loans, HELOCs come with variable interest rates that can change monthly. While today’s HELOC rates are slightly higher than home equity loan rates, they’re still competitive — and likely to fall if inflation improves and interest rates are reduced.
This could be a major advantage for HELOC users. While a reduction in rates won’t come in April, by securing one during the month users will be in a prime position to see their rate cut either in May or in June, when many experts predict the first rate cut of 2024. Home equity loan borrowers, meanwhile, would need to refinance to secure a lower rate.
Learn more about your HELOC options online today.
Why a home equity loan may be better this April
If your primary goal is to secure the lowest home equity rate possible right now, regardless of where the rate climate is headed, then a home equity loan may be better in April. Home equity loan rates, as of March 27, are 8.59% on average, with 10-year loans at 8.73% and 15-year loans at 8.70% — all three of which are lower than today’s 8.99% HELOC rate.
A home equity loan could also be preferable for you next month if you feel that there’s still work left to do to tame inflation — and that interest rate cuts will be delayed yet again. If this is how you’ve interpreted recent data (and some have), then it could make sense to lock in a home equity loan rate now, before any upward adjustments come later in the year.
The bottom line
The choice between a HELOC and a home equity loan is a personal one with many factors to consider, especially now, with the prospect of interest rate cuts higher than it’s been in years. While it’s important to pick the optimal borrowing product for your needs and goals, either option is better than popular alternatives like credit cards (which hover around 20% right now) and personal loans (which have an average interest rate of 12%). Cash-out refinancing, meanwhile, would change your mortgage terms and likely saddle you with a higher mortgage interest rate in the process. But by understanding the drawbacks of the alternatives — and the rate considerations of HELOCs and home equity loans in the weeks and months ahead — borrowers will be better prepared to make an informed, secure decision.
Can you afford a home equity loan? 5 ways to know
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For homeowners looking to fund major expenses, like home renovations, education costs or debt consolidation, a home equity loan can be an attractive option. And, that’s especially true in today’s unusual economic environment. Not only are home equity loan rates currently lower than the rates on credit cards or other types of loans, but the average homeowner currently also has about $300,000 in home equity right now.
But while it can make sense to borrow against the equity you’ve built, the reality is that taking on additional debt secured by your home is a big decision that requires careful consideration. Not everyone is financially prepared for a home equity loan. And, since your home is used as collateral, borrowing too much and missing your home equity loan payments as a result could lead to foreclosure over time.
That’s why it’s important to assess if you can truly afford the added monthly payments and risks that come with a home equity loan.
Ready to tap into your home’s equity? Find the home equity loan rates available to you here.
Can you afford a home equity loan? 5 ways to know
Want to assess whether a home equity loan makes sense for your finances? These five strategies can help:
Calculate your new monthly payment
When you borrow money from your home’s equity, you’ll have a second monthly loan payment in addition to your regular mortgage payment. So, to determine whether you can afford the home equity loan, you need to make sure you can comfortably fit the extra monthly payment into your budget without cutting into other important goals like retirement savings.
There are a few ways to calculate this, but one simple method is to use an online home equity loan calculator to estimate what the new total monthly payment could be. Once you’ve calculated your monthly payment, compare it to your budget to ensure it fits comfortably within the range you have earmarked for it.
Explore your best home equity loan options online today.
Run the numbers on interest rates
Home equity loans typically come with higher interest rates than primary mortgage loans, but the rates are still generally lower on average than most other financing options. To determine whether you can afford the home equity loan, calculate how much you’ll pay in total interest over the life of the loan at the offered rate. Is that a cost you’re willing to take on?
And, be sure to compare the rates you’re offered on a home equity loan or a home equity line of credit (HELOC) to offers you get on other loan products. For example, if you’re a borrower with a good credit score and borrowing profile, you could qualify for a 0% interest rate on a credit card instead. That could be the cheaper option of the two, provided that you can pay off what you borrow within the introductory period.
Assess your job security
Losing your job and primary income stream could make those extra loan payments difficult to keep up with. So, as part of determining whether you can afford a home equity loan, you should look critically at how stable your current employment situation is.
Have there been recent layoffs or reductions at your company or in your field? Were you recently hired or do you plan to change jobs soon? If the answer to either of those questions is yes, be sure to weigh whether you’d still be able to afford your home equity loan payments if you were to be temporarily displaced from your current position.
And, do you have enough emergency savings to cover loan payments for six to 12 months? If not, a home equity loan may be too risky to take on right now.
Understand your equity stake
Taking a large loan against the equity in your home depletes that equity amount, at least until your loan is paid off in full. That’s why it makes sense to ensure that you’ll still have at least 20% equity remaining after the home equity loan.
Keeping that amount (or more) in equity protects you from going underwater on your mortgage if home prices decline. So run the total numbers to understand exactly how much usable equity you’ll have left. And, if you find that you would have less than 20% equity in the home after borrowing, you may want to think twice about whether a home equity loan is truly affordable for you at this point.
Think through your time horizon
If you’re planning to use the money from your home equity loan to make renovations or repairs, it’s important to consider your time horizon while determining the affordability of your loan. After all, while you may be able to afford the monthly payments, the amount of time you plan to remain in your home still plays a critical role in determining if a home equity loan makes financial sense.
For example, if you plan on staying put for 10 years or more, that gives you ample time to enjoy the benefits of your home improvement or other investment over many years. This long time horizon increases the chances you’ll recover the costs through added home equity and value from the renovation.
However, if you’re planning to move within the next five to seven years, you may not recoup enough value to justify the home equity loan costs. That’s because extensive renovations don’t automatically translate into an equal rise in home value, and you may only recoup a portion of those costs when selling. The shorter your time remaining in the home, the less financial sense it may make to take out a home equity loan for renovations or other expenditures.
The bottom line
For many homeowners, a home equity loan can be a valuable financial tool when used strategically. But borrowing money from your home’s equity is not a decision to take lightly. By evaluating your specific circumstances through the lens of monthly payment affordability, interest costs, equity stake, job security and time horizons, you can determine if this type of borrowing makes sense. And, with proper preparation and planning, you can ensure that taking out a home equity loan aligns with your short- and long-term financial goals rather than creating future stress and struggles.
10 important mortgage loan questions to ask this spring
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There’s no question that inflation has cooled significantly compared to mid-2022 when the inflation rate hovered above 9%. However, we aren’t back to normal just yet. At 3.2%, today’s inflation rate is still well above the Fed’s target rate of 2%, resulting in the Federal Reserve’s benchmark rate remaining paused at a 23-year high. In turn, borrowers now face elevated interest rates on everything from credit cards to mortgage loans — especially compared to the rates that were offered in 2020 and 2021.
But the good news is that mortgage rates, in particular, have declined slightly over the last few months, making it more affordable to borrow money for a home. And, as the spring homebuying season kicks into high gear, many prospective buyers are starting the pre-approval process to secure a mortgage loan.
Finding the right mortgage loan goes beyond just getting the best mortgage rate, though. It’s also critical that you understand all the details, fees and requirements from your lender so you can make the best decision possible for your money. And that starts by asking some important questions.
Explore your top mortgage loan options online now.
10 important mortgage loan questions to ask this spring
If you want to make an informed decision on your mortgage loan this spring, here are 10 crucial questions you should ask your mortgage lender:
What are the current mortgage rates and fees?
It’s crucial to get a clear picture of the interest rate you qualify for and understand all the lender fees involved in the transaction. As part of this process, be sure to ask about the mortgage loan’s annual percentage rate (APR), which includes the interest rate plus other costs. And, given that today’s mortgage rates are hovering near 7%, don’t forget to inquire about discount points to buy down the rate.
Find the best mortgage loan rates you could qualify for today.
What are the different loan program options?
There are various mortgage products to choose from. For example, your lender may offer you conventional or jumbo mortgage loan options as well as government-backed mortgage loans, like Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and U.S. Department of Veterans Affairs (VA) loans.
Each type of mortgage loan has pros and cons to consider, and your lender should explain the differences and qualifications for each. That way, you can choose the right fit based on your down payment amount, credit score and financial situation.
What is the required down payment minimum?
Down payment requirements can vary across mortgage loan programs, and depending on the amount of money you have to put down on the home, one mortgage loan could make more sense over another. So, be sure to find the minimum down payment percentages for each type of loan you’re considering, as well as the benefits of putting down a higher amount to avoid mortgage insurance.
You may also want to ask if you’re eligible for any down payment assistance programs, as these programs may be available for certain types of buyers or mortgage loans.
How much home can I afford?
Your lender will pre-approve you for a maximum mortgage loan amount based on your income, debts and credit. However, it’s important to understand that the amount you’re approved for is the maximum, and you need to know what monthly payment you can realistically afford.
With that in mind, be sure to ask your lender to run different home price scenarios with estimated payments to ensure that you’re comfortable with the potential costs each month and that they align with what you have budgeted for your mortgage payments.
What documentation is required?
Your lender will need various documentation, from tax returns and pay stubs to bank statements and gift letters, to verify your income, assets and other information that’s required to approve you for your mortgage loan. It can be helpful to get a full checklist of required paperwork so you can prepare in advance, helping to expedite the pre-approval process (and ultimately the loan approval process).
How long is the mortgage pre-approval valid?
Pre-approvals typically have an expiration date, which can vary by lender, but are often between 60 and 90 days. Ask your lender how long your mortgage loan preapproval is valid for and find out what the process is to get re-approved if your home search takes longer just in case there are issues with finding the right home in that time frame.
What are the estimated closing costs?
In addition to your down payment, you’ll need to pay closing costs, which can vary by lender, but typically amount to 2% to 5% of the home’s purchase price. Be sure to request a fee worksheet or estimate from your lender to understand this significant upfront expense.
And, in some cases, you may be able to negotiate with your lender to lower some of these closing costs and fees. Knowing what these costs are as you compare your loan and lender options can be useful as you determine whether it would be worth it to do so.
What is the rate lock period?
A mortgage rate lock guarantees that your quoted interest rate won’t increase for a set period, which is often between 30 and 60 days. As you navigate the mortgage lending process, be sure to find out the lender’s lock periods and associated fees in case you need an extended rate lock.
What are the steps after pre-approval?
Having clarity on the next steps after pre-approval is an important component of ensuring the mortgage lending process is a success. So, be sure to ask your lender about the typical timeline for what happens after pre-approval. That way you know how long you have to shop for homes, the timeline for having a home under contract, when you need to secure the appraisal and the estimated time it will take for the underwriting processes to get the final approval.
Are there any prepayment penalties?
These days, it’s rare for lenders to charge mortgage prepayment penalties. However, it’s still important to confirm there are no fees if you pay off your loan early or refinance down the road, so be sure to ask this question of your lender.
The bottom line
The mortgage process can be daunting, especially in today’s high-rate environment, but being an informed borrower is half the battle. So, as you navigate the mortgage lending process, don’t hesitate to ask your lender plenty of questions, as this will likely be one of the biggest financial decisions you’ll make. That’s why an experienced, communicative lender is key to making the right mortgage choice this spring homebuying season.
Borrowers take to TikTok to weigh options after Biden’s student loan forgiveness was blocked
Student borrowers are floating a range of ideas online for lightening their burdens when loan repayments resume on Oct. 1: Pay a little, pay nothing, cite Scripture.
In a recent viral TikTok with over 50,000 likes, Dawn Cowle discusses a letter she sent to Nelnet, her student loan issuer, featuring a verse from the Book of Deuteronomy: “At the end of every seven years you must cancel debts.”
Cowle acknowledged she was joking — mostly.
“It would be ridiculous if Nelnet was like, ‘Oh, OK, sure, no questions asked. You can’t pay your loans back? You got it!’” she said.
But like many indebted borrowers, she’s had frustrations to vent since June 30, when the Supreme Court invalidated President Joe Biden’s plan to cancel up to $20,000 in student debt per eligible borrower.
Throwing the Bible at Nelnet, Cowle said, “would show that we are not in a position to just continue to lay down and be steamrolled.” (Nelnet didn’t respond to a request for comment.)
Sentiments like Cowle’s have reanimated a vocal online community of borrowers and activists, some of whom have long campaigned for government debt relief or, failing that, a mass boycott of student loan repayments. But experts — and some borrowers who’ve tried it — warn that most people risk serious consequences for not ponying up.
“The financial repercussions of not paying your student loans, to me, is probably one of the worst financial decisions that you can make as an individual,” said Robert Farrington, the founder of the College Investor, which works to improve young people’s financial literacy.
Nonpayment, especially for those with loans from the federal government, could lead the authorities to garnish borrowers’ tax refunds, or their Social Security or disability payments, he said. It can also limit access to more student aid in the future and even hinder employment.
Not paying your student loans, to me, is probably one of the worst financial decisions that you can make.
Robert Farrington, founder of the College Investor
“It’s not new,” Farrington said about the idea of deliberate nonpayment, “but I think because now payments are resuming, it’s definitely getting a lot more traction.”
Over 45 million Americans hold more than $1.7 trillion in federal student loans, with the average borrower owing over $37,000, according to the Education Data Initiative. Most student debt is federal, with only 8% of students borrowing from private issuers.
Shahem Mclaurin, a TikTok creator with over half a million followers, asked viewers in a recent viral video whether people will begin paying back their loans after the Supreme Court rejected Biden’s plan.
“And this is not a joking, play-play-like type of situation,” Mclaurin said. “Are we not paying — like collectively, as a whole — meaning if you put a payment down you are breaking, you’re crossing the line?”
Thousands of comments and “stitches,” where TikTok users incorporate existing posts into their own, weighed in on Mclaurin’s idea. The first-generation college graduate earned a master’s degree from NYU in 2020, owes $150,000 and doesn’t plan on paying any of it back soon, citing the high costs of living.
“I worry every day,” Mclaurin said of the possible repercussions. “Sometimes I don’t sleep at night. I have a lot of anxiety around it.”
After the Supreme Court ruling, the Biden administration unveiled a yearlong grace period starting this fall, insulating borrowers from near-term consequences for nonpayment even while interest begins to accrue again starting Sept. 1. And under longstanding federal policies, borrowers with existing student debt can typically get their payments paused temporarily if they go back to school. In many cases, though, interest will continue to accrue.
Cowle said her loans are deferred for now as she works on her MFA in screenwriting; payments will kick in six months after she graduates a couple of years from now. While she said she didn’t pursue another degree as a deferment strategy, some are saying they will.
Dominic McDonald, a May 2022 graduate of Albion College in Michigan, said the ruling expedited his decision to apply for graduate school this year to avoid paying his loans. “I am under some financial stress because I’ve never had to do it before,” he said.
There are ways to pay less through other avenues that don’t entail potential penalties, Farrington said. He estimates that half of student loan borrowers qualify for some type of forgiveness program, but many haven’t filed the paperwork to receive it.
“People are just leaving loan forgiveness money on the table that they should qualify for,” he said.
The Debt Collective, an organization founded in 2012 alongside the Occupy Wall Street movement, has been promoting a “Can’t Pay! Won’t Pay! Student Debt Strike” on its website and offering advice about “the multiple ways you can safely get to nonpayment.”
Those include income-driven repayment plans, which adjust monthly payments to a borrower’s income, and public service loan forgiveness, which allows people working in government and other civic-oriented jobs to have their debts zeroed out. Farrington also encourages these methods, among others, and hopes more people will pursue them.
Even if [the monthly payment] is a couple hundred dollars, I need it.
student borrower Josie Bridges
After the Supreme Court ruling, “We internally are like, ‘Oh wow, we need to prepare for this influx of people,’” said Braxton Brewington, the Debt Collective’s press secretary. He said the group has seen interest in its debt strike jump in recent weeks and expects it to rise further as Oct. 1 nears.
Asked whether the collective worries its messaging could be misinterpreted as a call to simply boycott repayments indefinitely, Brewington said the organization encourages people to avoid defaulting on their loans if they can help it. But he said the group aims to highlight the tough financial predicament many borrowers face.
“What’s blanketed the whole conversation about ‘Should people just not pay?’ is people don’t want to be subjected to the harsh consequences of the federal government,” he said, adding that the Debt Collective urges borrowers to use their money on necessities like food, medication or housing over paying back their loans. “In a lot of ways, there isn’t a choice,” he said.
Some borrowers are warning others online against nonpayment, with a few saying they’d had their wages garnished. Other efforts are popping up to offer cash-strapped debt-holders informal or crowdsourced support through community funds and mutual aid. One TikTok user has even floated creating a lottery system to help pay off random people’s student loans every week.
Josie Bridges, a single mother in Portland, Oregon, said she was eligible to have all of her student loans forgiven under the White House plan. Now, between rent and other basic expenses, she said she couldn’t afford to resume payments this fall even if she wanted to.
“Even if [the monthly payment] is a couple hundred dollars, I need it,” she said.
Bridges is watching the calendar tick down to October with trepidation. She’s even considering picking up a couple new classes — and racking up more debt in the process — just to defer the coming payments.
“Now that they’re back, I’m stressed out,” she said.
How to find the right student loan cosigner
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As the cost of higher education rises, growing at an annual rate of about 2% over the last decade, many students are finding themselves in need of financial assistance to pay for their college classes. The average yearly cost of tuition, books, supplies and daily living expenses is $36,463 per student, according to the Education Data Initiative, though some colleges and universities can have much higher costs than the average.
So, with the start of the fall 2023 semester closing in, you may be searching for ways to cover these costs. While federal grants and loans may cover some of the costs of higher education, they may not be enough to cover everything. In that case, private student loans offered by private lenders can be a good option to fill in the gaps.
However, if you have bad or no credit history and a limited income, securing a private student loan can be challenging. Private student loan lenders take into account your credit score and income when considering your application. But the good news is that finding the right cosigner can significantly improve your chances of obtaining a private student loan with a lower interest rate and better terms.
Don’t wait to find out what private student loan rates and terms are available to you now.
How to find the right student loan cosigner
To get you started on the right foot, consider these tips for finding the right cosigner for your student loans.
Start with close family
The most natural place to look for a student loan cosigner is within your own family. Parents, in particular, are often the first choice due to their vested interest in your academic success. They may be more likely to have a strong credit history and stable financial situation, increasing your chances of approval for the loan. Your close family is also more likely to take a chance on cosigning your loan, as most will want to see you succeed in your education.
When approaching your family, have an open and honest conversation about your educational plans, loan terms and your repayment plan. Make sure they are fully aware of their responsibilities as a cosigner and only proceed if both parties are comfortable with the arrangement.
Find out today’s top student loan rates right now.
Ask a relative or your inner circle
If your parents are unable to serve as cosigners, consider reaching out to other close relatives or trusted individuals in your inner circle. Siblings, aunts, uncles or grandparents could be potential candidates if they meet the requirements set by the lender. Cosigners typically need to have a good credit score and an income to qualify — and for you to get the best loan terms — so make sure to consider those factors when narrowing down the options.
As with your parents, approach these conversations with transparency, explaining your goals and how their support can help you achieve them. Any potential cosigner should also understand what cosigning on a loan actually entails. While you may have the option to release your cosigner from your student loans in the future, it’s important to be upfront about what the process looks like, potential repercussions and what their obligations may be if you default on your loan.
Be wary of online cosigners
In researching options for a cosigner, you might come across online platforms or services that connect students with potential cosigners. This might seem like a convenient solution, but take caution. Entrusting your financial future to an unknown cosigner could pose risks.
For starters, many online cosigners come with application fees or other types of fees which can increase the cost of borrowing — may not be refunded if you aren’t matched with a cosigner by the service. These types of cosigner services could leave you with little to no control over the cosigner you’re matched with, and whether they meet the requirements by your private lender. This, in turn, could lead to higher interest rates or loan denials.
Depending on the situation, you may be better off applying for a student loan with a higher rate rather than using a cosigner service, but if you do choose this route, always thoroughly vet any potential cosigners you’re matched with.
Learn more about the private student loan rates you may qualify for now.
Consider the alternatives
If finding a cosigner ultimately proves challenging, you may want to explore no-cosigner student loan options instead. While they tend to come with higher interest rates, some private lenders do offer loans specifically designed for students without cosigners. You can also look into student loans with bad credit — like lenders without credit score requirements.
As with any type of loan, it’s important to consider all the factors before choosing, but these alternative loans may be a good way to secure the funds you need without having to track down a cosigner.
The bottom line
Finding a student loan cosigner may be a crucial step in securing financial assistance to pursue higher education. Start by approaching your close family, and if that option isn’t available, consider reaching out to other trusted relatives or individuals in your inner circle. Online cosigners may seem convenient, but be cautious and thoroughly vet potential candidates. You can also consider no-cosigner student loans as an alternative. But no matter what you choose, remember that a well-considered decision will set you on the path to achieving your academic goals with a strong financial foundation.