Home equity levels are rising: 3 reasons to tap in now
Over the last few years, numerous factors, from sustained buyer demand to limited for-sale inventory in most markets, have caused home equity levels to climb significantly — and it looks like that trend isn't over just yet. Home equity levels increased yet again in March, according to the May 2024 ICE Mortgage Monitor, leaving the average homeowner with about $206,000 in tappable home equity.
Home equity can be a smart option to consider if you're a homeowner who needs to borrow money at an affordable rate, whether it's to make necessary home renovations or repairs, consolidate debt or cover another large expense. And, there are multiple ways to borrow against your home equity, including home equity loans, which let you borrow a lump sum of cash, and home equity lines of credit (HELOCs), which give you access to a line of credit that can be drawn from as necessary.
And, those aren't the only reasons that home equity borrowing could make sense to consider right now. If you're wondering why you should borrow against your home's equity in today's economic landscape, there are some things you should know.
Find the best home equity rates you could qualify for here.
Home equity levels are rising: 3 reasons to tap in now
There are a few good reasons you may want to tap into your home equity right now, including:
Home equity loan rates are low comparatively
The Federal Reserve's rate hikes over the last couple of years have impacted borrowing costs across the board, and that includes home equity products. But while today's home equity loan and HELOC rates aren't as low as they were during the height of the pandemic, they're still a lot lower than the interest rates tied to many other borrowing options.
Right now, the average rate on a home equity loan is 9.66% while the average HELOC rate is 9.89%. That may not seem like a great deal, but it could be compared to a personal loan. After all, the average personal loan rate is hovering above 12% — so the sub-10% rate you can get on a home equity loan or HELOC could result in substantial savings over time.
And the same goes for credit cards. With the average credit card rate closing in on 22%, opting for a home equity loan or HELOC, even with a slightly higher-than-average rate, could mean paying much less in interest comparatively.
So while you may not be able to secure the ultra-low rates you could have in 2021 or 2022, today's home equity rates are still a pretty good deal compared to your other options.
Learn more about your home equity borrowing options online now.
Home equity borrowing limits are typically higher
If you need to borrow a large sum of money, you may find that the limits on personal loans or credit cards are a lot lower than you expected. For example, the most you can typically borrow with a personal loan is about $100,000 — and very few lenders allow you to borrow that much with this type of unsecured loan. It's much more common to see limits of $40,000 to $50,000 instead.
And, the average credit card limit is even lower than that. According to Experian, the average credit limit in the U.S. was $29,855 as of the third quarter of 2023. So, these options may not make much sense when you need access to a hefty borrowing limit.
Most home equity lenders, on the other hand, allow you to borrow up to 85% or so of your total home equity. Depending on how much equity you've built in your home, this could mean having access to tens or hundreds of thousands of dollars to borrow from. That can come in handy if there's a significant expense you need to cover.
Borrowing could get more expensive in the future
It's impossible to accurately predict what will happen with rates in the future. That said, we're in the midst of an unusual economic environment. While today's inflation rate is low compared to the 9.1% peak that occurred in mid-2022, at 3.4%, it's still hovering well above the Federal Reserve's 2% target rate.
And, should inflation continue to impact the economy, there's a chance that the Fed could increase rates again at some point in 2024 to try and get it under control. And, if they do, home equity borrowing rates would almost certainly increase in tandem, making it more expensive to take out a home equity loan or HELOC.
So, if you need to borrow money, is it really wise to put it off? After all, borrowing costs can increase substantially with just a slight uptick in the interest rate, so waiting could be a gamble. But if you lock in a rate on a fixed home equity loan now, you'll be protected from the negative effects of future rate increases while getting access to the funds you need.
The bottom line
If you're a homeowner, today's high home equity levels offer you a way to borrow money at a low rate, which is a pretty big win in this elevated-rate environment. And, tapping into your home equity could allow you to borrow large sums if you need to, especially compared to options like personal loans or credit cards. But if you're going to borrow against your home's equity, you may want to make your move now. After all, it's tough to predict what could happen in the future, and if the Fed chooses to raise rates again to help fight against inflation, it could get a lot more expensive to do so.
