Rediscover Home Equity in Today’s Low-Rate Environment
As the economy rebounds from the challenges of 2020, interest rates remain historically low. As a result, the real estate market is booming. Record-low mortgage rates are driving the demand for homes and increasing their value. According to the Federal Reserve, this trend has contributed to the highest level of home equity — ever.
Home equity is the market value of a home minus any outstanding mortgages. In other words, home equity is the portion of your home that you currently own. As the value of your home appreciates, and you continue to pay down debt, your home equity increases. The good news for homeowners is higher home equity means greater financial leverage. For example, homeowners can borrow from their home equity to finance other needs, such as a new roof or college tuition.
Home equity financing often comes with perks that aren’t applicable to other consumer borrowing options. For example, lenders often offer lower interest rates since the home secures the loan. Also, when the loan is used for certain projects, the interest might be tax-deductible.1 Just be sure to consult with a tax advisor to confirm this deduction is applicable to your project.
Vikram Gupta, head of home equity lending at PNC Bank, says, “With today’s low rates, this is a very favorable time for borrowing against your home.”
Choosing the Right Home Financing Option
Today, homeowners who are looking for a convenient, cost-effective way to fund a project or major expense have options. One such option is a home equity installment loan (HEIL), which allows you to borrow a lump sum for a fixed rate over a fixed time period. Another option is a home equity line of credit (HELOC), which is a revolving line of credit with an adjustable interest rate. Like credit cards, HELOCs give you the ability to continuously borrow up to an approved limit while paying off the balance.
PNC offers the best of both options in a single product. Gupta explains, “At PNC, we blended the traditional HELOC with a HEIL to create what we call the Choice Home Equity Line of Credit, or CHELOC. It offers all the benefits of the HELOC and HEIL wrapped into one.” For example, a CHELOC is just like a typical line of credit in that it provides ongoing access to funds, and interest is only charged on the amount you spend. However, a PNC CHELOC also offers the option of locking in a fixed interest rate. Like a traditional HEIL, this can protect you from potential rate hikes while providing consistent monthly payments. In addition to your choice of a fixed or variable rate, a CHELOC also offers you several convenient ways to access your home equity. You can transfer the funds to other accounts using online banking or write checks directly from your credit line. You can also request a Choice Access Card to use anywhere Visa® is accepted.2
“When considering all the benefits, it’s important to remember that home equity financing — just like any type of borrowing — is not risk-free,” Gupta advises. “Since the home is used as collateral, you should consider the implications if you’re unable to repay your loan. Also, if you have other financial assets, such as cash or investments, you should weigh the returns those assets generate against the cost of a home loan and make an appropriate risk/return trade-off.”
With the risks and rewards in mind, this may be the time to consider using your home’s equity. Digital options make it convenient to apply for the funds you need to remodel your kitchen, consolidate high-interest loans, or even take that long-awaited dream vacation. To find out which financing option might be the best fit for your goals and risk tolerance, contact a financial advisor today.
To learn more or to apply today, visit PNC.com
1 Interest on home equity loans/lines that are not considered home acquisition debt may not be tax-deductible. Please consult your tax advisor.
2 Card access is not available in Texas.
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Visa is a registered trademark of Visa International Service Association and used under license.
PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”). All loans are provided by PNC Bank, National Association, a subsidiary of PNC, and are subject to credit approval and property appraisal.
