4 smart times to tap into your home equity in 2024

American hundred-dollar bills and illuminated paper house
Tapping into your home equity may not always make sense, but there are a few reasons you may want to consider it in 2024. zen rial/Getty Images

Homeownership can be a valuable asset that can go well beyond providing shelter. For many homeowners, their property represents a substantial portion of their net worth — and that's especially true right now. Thanks to the unique housing market environment that occurred over the last few years, the average homeowner currently has about $200,000 in tappable home equity. 

One way to leverage this value is by borrowing from that home equity, which can be a strategic financial move when done thoughtfully. And, there are specific smart times when accessing your home equity could make a lot of sense this year. Let's explore these opportunities and the potential considerations involved.

Ready to borrow from your home's equity? Explore your home equity loan options online here.

4 smart times to tap into your home equity in 2024

There are a few times it could make sense to tap into your home's equity this year, including:

To enhance your home's value

Investing in your property through home improvement projects is a classic and smart reason to tap into your home equity. Whether it's remodeling the kitchen, adding a new bathroom or upgrading your outdoor space, these enhancements not only improve your living experience but also increase the value of your home. 

And, with home equity loan interest rates still relatively low compared to other types of loans, using home equity for renovations can be a cost-effective way to boost your property's overall worth.

Before proceeding, though, it's crucial to estimate the potential return on investment (ROI) for the planned improvements. Some renovations offer a higher ROI than others, so prioritize projects that align with both your lifestyle needs and the potential for increasing your home's value.

Find out the home equity loan rates you could qualify for here.

To streamline your finances with debt consolidation

Another strategic use of home equity is to consolidate high-interest debt. If you have multiple outstanding loans or credit card balances with high interest rates, using your home equity to pay off these debts can be a savvy financial move — especially right now. 

After all, rates on credit cards and other variable-interest loans have skyrocketed over the last couple of years, so your debt may be costing you a lot more than you bargained for. But home equity loans or home equity lines of credit (HELOCs) typically have lower interest rates compared to credit cards or personal loans, allowing you to streamline your debts and potentially save money on interest payments.

However, it's also essential to exercise caution and address the root cause of the debt issue. If overspending or financial mismanagement is the underlying problem, tapping into home equity might provide temporary relief but may not solve the fundamental financial challenges.

To manage education expenses

As education costs continue to rise, many homeowners are turning to their home equity to fund education expenses for themselves or their children. Using home equity to finance education can be a strategic investment in the future, especially if it leads to increased earning potential. However, it's crucial to consider the long-term financial implications and have a solid repayment plan.

Homeowners can explore options such as a HELOC with flexible repayment terms to manage education-related expenses. That said, it's also advisable to explore other financing options, such as scholarships, grants or federal student loans, before tapping into home equity.

To create a financial safety net

In uncertain economic times, having a financial safety net is essential. And, tapping into home equity to establish or bolster an emergency fund can provide peace of mind and financial security. This can be particularly relevant if you anticipate changes in income or foresee potential expenses, such as medical emergencies or unexpected home repairs.

Before using home equity for an emergency fund, though, be sure to carefully assess your financial situation and ensure that you have a realistic repayment plan. It's crucial to strike a balance between leveraging your home equity for financial security and avoiding unnecessary risks.

How to decide if a home equity loan is right for you

While tapping into your home equity can be a strategic financial move, it's essential to evaluate whether a home equity loan is the right option for your specific situation. 

  • Assess your financial goals: Clearly define your financial goals and objectives. Whether it's funding a home improvement project, consolidating debt or covering education expenses, understanding your priorities will guide your decision-making process.
  • Calculate your loan-to-value (LTV) ratio: The LTV ratio is a crucial factor in determining your eligibility for a home equity loan. Lenders typically prefer an LTV ratio below 80%, so ensure that your home has sufficient equity.
  • Evaluate interest rates and terms: Compare interest rates and terms offered by different lenders. While home equity loans often have lower interest rates than unsecured loans, it's essential to understand the specific terms, repayment schedule and any associated fees. 
  • Consider potential risks: Since your home serves as collateral, failure to repay the loan could result in foreclosure. Assess your ability to meet the repayment terms and consider the impact on your overall financial stability.
  • Review alternative financing options: Compare the terms, interest rates and repayment flexibility of various options. Depending on your needs, personal loans, credit cards or other financing arrangements may be more suitable.
  • Understand tax implications: Familiarize yourself with the tax implications of a home equity loan. In some cases, the interest paid on home equity loans may be tax-deductible
  • Create a repayment plan: Develop a clear and realistic repayment plan and consider factors such as your current income, future earning potential and any potential changes in your financial situation. A well-thought-out repayment plan will ensure that you can meet your obligations without undue financial strain.
  • Evaluate current economic conditions: Changes in interest rates, housing market trends and economic stability can impact the overall cost and feasibility of a home equity loan.

The bottom line

Tapping into your home equity can be a strategic financial move when done at the right times and for the right reasons. Whether it's improving your home, consolidating debt, investing in education or creating a financial safety net, careful consideration and planning are key when borrowing from your home's equity. Before making any decisions, it may help to explore alternative financing options to ensure that tapping into your home equity aligns with your overall financial goals and enhances your financial well-being in 2024 and beyond.

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