It may be a good time to borrow against your home.
Many people borrow money in the form of taking on credit card debt. That’s generally not a great solution, though, because credit cards tend to charge a lot of interest, and too high a credit card balance could damage your credit score. Taking out a personal loan is another option when you need money, and generally, you’ll pay less interest than what a credit card will charge you.
But if you’re a homeowner and are planning a big renovation in the new year, or have a need for money for a different reason, then your best borrowing option in 2022 may be a home equity loan. Here’s why:
Put your home equity to good use
Home equity is the portion of your home you own outright. It’s calculated by taking your home’s value and subtracting the amount you owe on your mortgage from that number. If you own a home that could sell in today’s market for $350,000, and you only owe $200,000 on your mortgage, it means you’re left with $150,000 worth of equity.
Right now, U.S. homeowners are sitting on record levels of home equity due to the fact that home values have soared on a national level. In fact, collective home equity among U.S. mortgage borrowers reached $9.4 trillion in 2021’s third quarter, according to real estate data firm Black Knight. When we break that number down further, it amounts to an average of $178,000 worth of equity per borrower.
If your home is now worth a lot more than it was a year ago, you, too, may have a lot of home equity to tap. Borrowing against your home could be a wise move if you have a specific need for money.
What might you take out a home equity loan for? Really, just about anything. There are no restrictions when it comes to borrowing against your home with regard to using that money. You can use those funds to:
- Renovate your home
- Repair your home
- Start a business
- Pay off existing debt, such as a nagging credit card balance or another loan that’s costing you a lot in interest
And these are just a few examples.
The pros and cons of home equity loans
Home equity loans are generally pretty easy …….