We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.
If you bought your home before you’d ever heard the term “COVID-19,” you’ve probably got an asset worth a lot more than you paid for it.
The price of a home has gone up quite a bit in the past few years – about 20% in the past year – as demographics, remote work, and a strong competition have pushed up demand for houses around the country. That means homeowners are sitting on a lot more equity than you might expect.
You can use the equity in your home in a variety of ways, borrowing against it to get cash you can use for all sorts of things. The question is, is it wise to treat your house like a piggy bank?
“There’s going to be the temptation,” says Mark Hinshaw, co-founder and president of Candor Technology, a mortgage tech firm. “They think all of a sudden they’ve hit the lottery.”
Experts say there are ways to prudently borrow against the equity in your home using home equity loans and lines of credit (HELOCs), but that you should be wary of the risks, namely that, like a mortgage, failure to repay could cost you your home.
“This can be money that’s valuable for people, especially people who have owned their home for a long time,” says Linda Sherry, director of national priorities for Consumer Action, a national advocacy group. But she warns borrowers to be careful about taking out money for non-essentials. “If it’s not a need and it’s just some sort of desire or want, you should really ask yourself: Is this something that is wise?”
Here are some things experts say you should consider before tapping into all that equity.
Homes Are Holding a Lot of Value
Nearly half of mortgaged residential properties in the U.S. were considered “equity-rich” in the first months of 2022, according to the real estate data firm ATTOM. That means the property’s value was more than twice what was owed on all loans secured by it, such as a mortgage.
Property values are up due to the incredibly hot housing market the past couple of years. Ruthless competition for a limited number of available homes means any house that goes on the market has been bound to fetch a higher-than-expected price. There are signs that may be cooling a bit as mortgage rates have …….
Source: https://time.com/nextadvisor/loans/home-equity/should-i-use-home-equity/