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Homeowners are sitting on $17 trillion in equity at the end of the first quarter of 2024, according to CoreLogic. The average home owner won $28,000 in equity compared to a year earlier.
For many people, they don’t need to touch that money.
Equity is “not like bread,” said Greg McBride, chief financial analyst at Bankrate. “It won’t go stale sitting there.”
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However, there is one exception: If you need to make major home improvements or repairs, home equity can be a viable solution, experts say.
Home equity is ‘a less expensive borrowing option’
Among homeowners surveyed, 55% see home improvements or repairs as a good reason to tap home equity; according to in a new Bankrate survey. The site surveyed 2,294 US adults, including 1,133 homeowners, at the end of June.
Using home equity is “definitely a less expensive borrowing option than resorting to personal loans or credit cards,” McBride said.
As of August 7th, the current average mortgage rate is 8.59%. according to at Bankrate. The average HELOC interest rate is 9.37%.
For comparison, the average personal loan interest rate is 12.38%, Bankrate found. The average credit card interest rate is 24.92%. according to on LendingTree.
While cash from savings is still the most common way homeowners finance renovation projects, at 83%, credit card use has increased, according to in the Houzz & Home 2024 US study. Houzz surveyed 33,830 homeowners age 18 and older from January 19th to February 27th.
About 37% of homeowners paid for their home improvement projects with credit cards, up from 28% in 2022; Houzz I establish.
Although using equity capital is cheaper, it still has risks. Interest rates are higher given the number of Federal Reserve rate hikes and you need to come up with a plan to pay off the debt.
Remodeling can add value
Using equity to invest in your home can make sense, said Jessica Lautz, deputy chief economist at the National Association of Realtors. Such projects not only help preserve the home, but may even enhance its value, boosting profits when you eventually sell.
The highest percentage recovered for exterior projects was from new roofs, at 100%. according to in the most recent Redevelopment Impact Report from NAR. For interior projects, the highest percentage was recovered from refinishing hardwood floors, at 147 percent, and installing new wood floors, at 118 percent, NAR found.
“We’ve found that hardwood floors have a more universal appeal,” Lautz said. “For something like a roof, it’s a big project. … People might want to get it done before they move into a house, make sure the roof is in good working order.”
Equity utilization for holidays, big purchases
More than 1 in 10 millennial homeowners said vacations or buying big-ticket items are good reasons to tap into your equity. according to at Bankrate. But experts say this move is a no-no.
“If you have to finance the cost of your vacation, you can’t afford the vacation,” McBride said.
Additionally, big-ticket items, such as a car or electronics, are depreciated in value from the point of purchase, he explained.
“You’re not just buying a depreciating asset, you’re financing the purchase of that depreciating asset,” McBride added.
