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Want to Borrow Against Your Home? It Pays to Get Moving ASAP – The Motley Fool

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You may want to tap your home equity while you still have more…….

Image source: Getty Images

You may want to tap your home equity while you still have more of it.


Key points

  • New data reveals that home equity may have peaked in May.
  • As home values drop, equity levels are apt to follow suit.
  • If you want to take out a HELOC, now is the time to look into it.

When you need money, whether to renovate your home or for another reason, you have different options for accessing it. You could take out a personal loan or even charge up a balance on a credit card. But a far more affordable means of borrowing could be to tap your home equity.

Home equity is defined as your home’s market value minus your mortgage balance. If your home is worth $400,000 and you owe $200,000 on your mortgage, it leaves you with $200,000 in equity, which you can borrow against via a home equity loan or line of credit (HELOC).

Meanwhile, earlier this year, home equity levels reached a record high of $11.5 trillion during the second quarter. But new data from Black Knight reveals that home equity levels may have already peaked in May, and may now be slowly but surely dipping downward. And so if you’ve been thinking of taking out a home equity loan or HELOC, you may want to get moving sooner rather than later — while you still have a healthy amount of equity to tap.

The upside of borrowing against home equity

There are two major benefits to taking out a home equity loan or HELOC. First, as long as the equity in your property is there, they’re fairly easy to qualify for.

Both home equity loans and HELOCs are secured by your home itself. As such, you might manage to qualify for one even if your credit score needs work. That’s because, in a worst-case scenario, your lender could always force the sale of your home to get repaid.

Along these lines, you may find that a home equity loan or HELOC is a more affordable means of borrowing than other options, like personal loans. Personal loans are unsecured, meaning they’re not tied to a specific asset. And so the lenders that issue them take on more risk, which tends to translate into higher borrowing rates.

The downside of borrowing against home equity

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Source: https://www.fool.com/the-ascent/mortgages/articles/want-to-borrow-against-your-home-it-pays-to-get-moving-asap/

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