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According to CoreLogic, the total value of homeowner-owned equity is $17 trillion by the end of the first quarter of 2024. The average homeowner gained $28,000 in equity compared to the previous year.
For many people, there is no need to touch that money.
“Home values are not like bread, they won’t go bad if they stay the same,” said Greg McBride, chief financial analyst at Wright Bank.
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However, there is one exception: If you need to make major improvements or repairs to your home, tapping into the equity in the home can be a viable solution, experts say.
“Home equity is a ‘lower cost borrowing option’”
According to a new survey from Bankrate, 55% of homeowners surveyed see home improvements or repairs as a good reason to tap into their home’s equity. The site surveyed 2,294 U.S. adults, including 1,133 homeowners, in late June.
Using the equity in your home “is definitely a less expensive borrowing option than using personal loans or credit cards,” McBride said.
As of Aug. 7, the current average interest rate on a home equity loan is 8.59%, according to Bankrate. The average interest rate on a HELOC is 9.37%.
For comparison, Bankrate found that the average interest rate on personal loans is 12.38%. The average interest rate on credit cards is 24.92%, according to LendingTree.
While cash from savings is still the most popular way for homeowners to finance renovation projects, at 83 percent, credit card use has increased, according to the 2024 Houzz & Home U.S. Survey. Houzz surveyed 33,830 homeowners ages 18 and older from Jan. 19 to Feb. 27.
Houzz found that about 37% of homeowners paid for their repair projects with credit cards, compared to 28% who did so in 2022.
Although stocks are cheaper to use, they are still risky. Interest rates have risen with the Fed’s repeated rate hikes, and you need to have a plan in place to pay off your debt.
Renewal can add value.
Using your home equity to invest in your home can make sense, said Jessica Lutz, deputy chief economist for the National Association of Realtors. Not only do such projects help preserve the home, they can also boost its value, boosting profits when it eventually sells.
According to the National Association of Realtors’ latest Remodeling Impact Report, the highest cost recovery for exterior projects was from installing new ceilings, at 100 percent. For interior projects, the highest cost recovery was from refinishing hardwood floors, at 147 percent, and installing new hardwood floors, at 118 percent, according to the National Association of Realtors.
“We’ve found that hardwood floors have a more universal appeal,” Lutz said. “For something like a roof, it’s a big project… People might want to get it done before they move in, and make sure the roof is in good shape.”
Utilizing home equity for vacations and major purchases
According to Bankrate, more than 1 in 10 millennial homeowners said vacations or big-ticket purchases are good reasons to cash in on their home’s value. But experts say the move is “a no-brainer.”
“If you have to finance the cost of your vacation, you can't afford the vacation,” McBride said.
He explained that expensive goods, such as cars or electronic devices, depreciate in value from the point of purchase.
“You’re not just buying depreciable assets, you’re financing the purchase of those depreciable assets,” McBride added.
