Your house isn’t just a place to hang your hat — it’s one of the biggest financial tools you own. With homeowners holding record levels of home equity these days, you might be asking: Is now the right time to tap into it? Short answer: maybe. Long answer: let’s break it down together before you start dreaming about that fancy backyard pool or wiping out those high-interest credit cards.
What Exactly Is Home Equity? (And Why It Can Feel Like Buried Treasure)
Home equity is simply the portion of your home’s value that you actually own outright. It’s the difference between what your house is worth in today’s market and what you still owe on your mortgage. So, if your home is worth $500,000 and you owe $300,000, you’re sitting on $200,000 in equity — minus any closing costs if you sell or borrow against it.
Plenty of homeowners build equity naturally over time, thanks to rising home prices and paying down their mortgage each month. The catch? You have to tap into it responsibly — just because you can doesn’t always mean you should.
How Homeowners Tap Into Equity
There are two popular ways homeowners turn their equity into cash:
Home Equity Loan
This works like a traditional loan. You get a lump sum up front, often with a fixed interest rate and predictable monthly payments. It’s a good choice if you have one large expense, like a major renovation or debt payoff, and want the certainty of steady payments.
Home Equity Line of Credit (HELOC)
A HELOC functions more like a credit card secured by your house. You get approved for a maximum limit, borrow what you need when you need it, and pay interest only on what you use. When the draw period ends, you pay back both principal and interest. It’s flexible, but keep in mind that rates are often variable — so your payments can change over time.
Is Now a Good Time to Tap Into Your Home Equity?
This is where your local loan officer or real estate partner earns their keep. Right now, home equity loan and HELOC rates are generally higher than they were a couple of years ago but can still be lower than credit card rates, which average over 20% according to the Federal Reserve.
Good reasons to tap into home equity now include:
Smart Renovations: Upgrades like kitchen remodels or an extra bathroom can add real value to your property and make your home more enjoyable to live in. It’s an investment, not just an expense.
Debt Consolidation: Using home equity to pay off high-interest debts can lower your overall interest costs and simplify your payments — but only if you resist running up new debt afterward.
Major Life Expenses: Some people use home equity for big expenses like college tuition, medical costs, or once-in-a-lifetime travel. Just make sure it truly adds long-term value and you have a clear plan to pay it back.
When You Might Want to Wait
Not every situation calls for borrowing against your home. You might want to hold off if:
You’re tempted to spend the money on everyday expenses without a plan to repay it.
You don’t have enough equity to leave a buffer if home prices drop.
You’re not comfortable with a variable rate that could push payments higher later.
A Real-World Example: One Win and One Warning
Take our client Sarah (name changed, but story real). Sarah used a HELOC to add a new primary suite to her house. The renovation boosted her home’s value by $75,000, and she paid off her balance within five years without a hitch.
Her neighbor Bob, however, took out a HELOC for the same amount — but used it to buy a shiny new truck and some expensive “toys.” Then rates went up. So did his payments. When he lost his job unexpectedly, the HELOC turned into a major stressor. Bob’s story is your reminder: use your equity wisely. Your house is collateral, so your repayment plan matters.
How Much Can You Borrow?
Most lenders will let you borrow up to 80% of your home’s appraised value, minus what you still owe on your mortgage. Here’s a simple example:
Your home is worth $500,000.
80% of that is $400,000.
You owe $300,000 on your mortgage.
That means you might be able to borrow up to $100,000 in equity.
But just because you can doesn’t mean you should. Always leave yourself some wiggle room — home values can fluctuate, and you want to keep your financial safety net intact.
Pro Tips Before You Tap Into Your Equity
Shop Around: Not all lenders have the same rates, terms, or fees. Compare your options, and don’t be afraid to ask questions.
Check Your Credit: Your credit score affects your rate. Better credit generally means better terms.
Understand the Details: Is the rate fixed or variable? Are there closing costs? Is there a penalty for paying it off early? Read the fine print.
Have a Repayment Plan: Don’t treat your house like an ATM. If you’re borrowing, make sure you know exactly how you’ll pay it back — and stick to the plan.
Key Takeaway: Your Equity Is a Tool — Use It Wisely
Tapping into your home equity can be a smart move when done carefully. Whether you’re planning a renovation, paying off debt, or funding a big milestone, be sure you understand the terms and the risks. That’s where working with a trusted real estate agent or mortgage partner (like us!) makes all the difference.
FAQs About Using Home Equity
Should I choose a HELOC or a home equity loan?
If you need a lump sum for a big one-time cost, a home equity loan can be a better fit. If you want flexible access for expenses spread out over time, a HELOC may make more sense.
Is the interest tax deductible?
It can be — if the money is used to “buy, build, or substantially improve” your home. The IRS has guidelines, so always double-check with your tax advisor.
Can I use equity for a down payment on another home?
Possibly, but you’d be putting both properties on the line if things go sideways. Talk with a loan officer to understand the pros, cons, and the impact on your monthly payments.
