Is it a good time to tap into the equity in your home?

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The quick answer? Yes and no.


Key points

  • You may have equity in your home that you can use as a source of cash.
  • While it’s smart to take advantage of that equity while you have it, it’s an expensive time to borrow right now.

One of the benefits of owning a home rather than renting one is to increase the equity in that property. Equity is defined as the market value of your home minus the balance you owe on your mortgage. If your home is worth $500,000 and you owe $300,000 on your mortgage, that leaves you with $200,000 of equity.

But having the equity in your home doesn’t just give you bragging rights. Rather, that home equity is something you have the ability to borrow against, whether in the form of a home equity loan, home equity line of credit (HELOC), or refinance. cash.

If you need money – for example, to renovate your home, pay off credit card debt, or start a business – then you might be interested in borrowing against the equity in your home. But is this the right time to take this path?

Why this is a good time to tap into the equity in your home

Ask anyone looking to buy a home right now, and you’ll hear the same thing. Home prices are soaring that buyers are constantly being squeezed out of the market.

This is not a good thing for those trying to buy a house. But it’s a good thing for the current owners. Right now, American homeowners are sitting on record levels of equity, and that alone justifies borrowing against yours now — while the value of those homes is still strong.

Why is it not a good time to tap into the equity in your home

Although you may now have more equity in your home than in the past, you should be aware that borrowing money has become very expensive across the board. These days, you’re likely to pay a much higher interest rate on a home loan, HELOC, or refinance than you would have paid a year ago. So while qualifying for equity borrowing is easy, it could also be an expensive prospect right now.

What’s the right call?

As tempting as it may be to borrow against your home equity, the reality is that it will cost you more now. But if you know you have a need for cash that won’t go away, tapping into your home’s equity may be your most cost-effective option. And you might be better off taking out a home equity loan or HELOC or doing a cash refinance now than a year from now.

We don’t know how house prices will evolve over the next 12 months. But if they start to fall to more moderate levels, homeowners will find themselves with less equity in their homes.

Also, although lending rates are rising right now, there is a chance that they will stay that way or rise even further over the next 12 months. And so, if you postpone your home equity loan, HELOC, or refinance for another year, you could find yourself in a situation where you can’t borrow that much and are stuck with an even higher interest rate.

Of course, it is possible that home values ​​will hold up and lending rates will drop. But without a crystal ball, it’s impossible to predict. And so, if you know you need the money, now might be the best time to act, even if it’s not the most ideal time in the grand scheme of things.

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Mortgage rates are rising – and fast. But they are still relatively low by historical standards. So if you want to take advantage of rates before they get too high, you’ll want to find a lender who can help you get the best rate possible.

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