3 reasons to tap into your home equity today
If you're a homeowner who could benefit from some extra cash flow, look no further than your home equity.
The equity you've built up in your home as you pay down your mortgage can be a valuable resource in the form of a home equity loan, home equity line of credit (HELOC) or even cash-out refinance. You can use the money in any variety of ways, and enjoy lower interest rates relative to other personal loan or credit card options.
While homeowners with a solid amount of equity may find value tapping into it at any time, there are a few reasons why you might want to consider doing so sooner rather than later.
Learn more about home equity options available now and see what you can qualify for here.
3 reasons to tap into your home equity today
In today's ever-changing market, these are some of the top reasons you may want to access your home equity right now:
Maintain your home's value if prices drop
Over the past few months, the housing market has been a whirlwind, with home prices falling then rising again and moving differently across different parts of the country.
If you're in an area where home prices are still competitive, it could be smart to tap into your home's value now, while your equity is high. If you use the money to make necessary improvements, cosmetic renovations or upgrades to the home, you can use its boosted price to ensure a longer-term increased value.
Plus, using your home equity loan or HELOC for qualifying home improvements can save you even more. When you meet specific IRS requirements, you can deduct the interest paid on your loan or line of credit from your annual taxes.
Explore home equity loan options you can qualify for today!
Consolidate high-interest debt
The Federal Reserve may have paused interest rate hikes in June, but rates are still higher today than they've been in years. What's more, Fed officials have already signaled that additional rate hikes could be in store before the year ends.
If you have existing high-interest debt — especially variable-rate credit card debt — you may save a lot of money by consolidating it with a lower-interest home equity loan or line of credit.
These products are secured by the value of your home, which helps you score a lower interest rate. Some home equity and HELOC rates may be as low as 6%-7%, compared to credit card rates averaging over 20% APR. Just remember, that security also means you could risk losing your home if you default on payments — so make sure you prioritize paying down your consolidated debt in full.
Reserve for emergencies
Using your home equity as an emergency fund isn't ideal — experts recommend saving three to six months' expenses in a high-yield savings account whenever possible. But with a looming recession, if emergency strikes or you face a period of financial hardship, it can be better than some alternatives.
"It's a good idea to have many levers at one's disposal for borrowing options, particularly now that credit has become tighter," Mike Biggica, CFP, founder of Pixel Financial Planning previously told CBS News. "If your roof suddenly needs a repair, and you were recently laid off, you'll be happy that you applied for that HELOC earlier in the year to avoid credit card debt."
Even if you do have a backup emergency fund, you might even consider tapping into the money now and not using it unless you absolutely need to. "My recommendation is to have a HELOC emergency use only and don't draw funds otherwise," says Gregory Crofton, CFP, founder of Adap Tax Financial.
See what home equity options you can qualify for now to decide if this is the right option for you.
How to tap into home equity today
If you decide to use your home equity, home equity loans and HELOCs are two of the most common ways to do so.
A home equity loan, also called a reverse mortgage, is a lump sum loan based on the amount of equity you've built in your home (around 80% to 85%). You can receive the full amount in cash to use as you'd like, and make monthly payments at a fixed rate until the loan amount is repaid.
A HELOC is similarly based on the equity you have in your home (the home's value minus the amount you still owe toward your mortgage). However, this option works more like a credit card. You'll receive access to a line of credit from which you can draw as much or as little as you need over a specific period. When that period ends, you'll pay back only what you borrowed from the line of credit, typically with a variable interest rate.
Are you considering tapping into home equity? Check out today's top rates here now!
