The pros and cons of using your home equity when interest rates are high

One good thing about the current economy for homeowners is the massive amount of equity that you might have. However, using your home’s equity while interest rates are high can be both beneficial and risky. Let’s dive in to a couple pros and cons…

Pros:

Lower than the alternative: While the interest rates on home equity loans or HELOCs may be higher right now, there’s a good chance they’re still lower than rates on credit cards or personal loans. So, using your home’s equity can still be a relatively cost-effective way to borrow money compared to your other options.

Gives you access to large sums of money: Home equity loans or HELOCs allow homeowners to borrow substantial amounts of money, which can be used for large expenses such as home renovations, which could possibly lead to more equity down the road.

Cons:

Risky implications: Using home equity could possibly put your home at risk. If you’re not able to make the payments on the loan or line of credit, you could face foreclosure. This risk is especially significant during periods of economic instability or if your financial situation changes unexpectedly. It’s essential to consider whether you’ll be able to afford the monthly payments over the life of the loan, especially if interest rates increase further in the future.

Potential decrease in home equity: While renovating your home could increase your equity in the long run, using your home’s equity reduces the amount of equity you have in the present, which could be problematic if property values decrease or if you have the need to quickly sell your home. The last thing you want is to be “underwater” on your mortgage.

Overall, while using home equity can be a nice financial tool, you need to carefully weigh the pros and cons and consider your circumstances before pulling the trigger on using your equity.