When To Tap Into Home Equity

The past few years were kind to homeowners. Across the country, millions of homeowners are sitting on $17 TRILLION dollars worth of equity. The average American homeowner gained an average of $24,000 in just 2023 alone.

What should they do with it? Let it sit?

“It depends,” says Soila Columbie, Sales Associate at ERA Justin Realty, “If you’re lucky enough to be sitting on that kind of money, it’s nice to have options.”

Here is a look at what your home equity can do for you.

Repairs or Renovations

“If you’re considering selling within the next few years,” says Jennifer Darby Metzger, Broker/Owner of ERA Justin Realty, “it might make sense to use some to make necessary repairs or remodeling. Any renovation will increase your home’s value even more.”

Most homeowners agree. Some 55% see home improvements as a good reason to tap home equity, according to a survey by Bankrate. Here’s why: Borrowing from your home equity costs less than personal loans. “The latest average interest rate on a home equity line of credit was a little over 9%. While that’s higher than current mortgage rates, it’s a far cry from 24% on a credit card!” It’s also better than personal loans, which have an average interest rate of 12% right now. 

The most profitable interior improvement is adding or refinishing wood floors. “You will get 100% of your investment back plus 20% to 50% more,” says Metzger.

Buy a Second Home

For some homebuyers, it can make sense to use your home equity to buy a second home. “If interest rates continue to drop, it may make sense to buy that shore house you’ve always wanted, especially if your primary mortgage is paid off,” says Columbie, “For home equity lines of credit you only have to pay the interest on money you use, which can make a vacation home financially viable.” You will also get all of your money back if you install a new roof.

Leave it Alone

For other homeowners, there’s no need to touch that money. “Using home equity should make you more money, or get you out of debt,” says Columbie. If you’re tempted to use it to fund a $10,000 vacation – don’t. If you have to finance your vacation, you can’t afford it. Leave your home equity alone to grow.”

Bottom Line

There are times to use your home equity and times you should not. If you’re looking to renovate or use your equity to buy another home, Soila Columbie or any of the experienced agents at ERA Justin Realty can help figure out the best way to tap your equity. Give us a call at (201) 939-7500.