Yulia Isaieva | Moment | Getty Images
According to CoreLogic, homeowner wealth will be $17 trillion by the end of the first quarter of 2024. The average homeowner’s wealth has increased by $28,000 year over year.
For many people, they will never need to touch that money.
Home equity is “not like bread,” said Greg McBride, chief financial analyst at Bankrate. “If you leave it sitting around, it doesn’t go stale.”
More information on personal finance:
The average consumer currently owes $6,329 in credit card debt
Economists say this labor data trend is a ‘warning sign’
Report finds that 59% of Americans mistakenly believe the U.S. is in a recession
But there’s one exception: If you need major home renovations or repairs, experts say tapping into your home equity could be a viable solution.
Home equity is a “cheaper borrowing option”
Fifty-five percent of homeowners surveyed believe that renovating or repairing a home is a good reason to tap into their home equity, according to a new Bankrate study. The site conducted a survey of 2,294 U.S. adults, including 1,133 homeowners, in late June.
Leveraging home equity is “certainly a cheaper borrowing option than relying on a personal loan or credit card,” McBride said.
According to Bankrate, the current average mortgage interest rate is 8.59% as of Aug. 7. The average interest rate for a HELOC is 9.37%.
By comparison, the average interest rate on a personal loan is 12.38%, according to Bankrate, and the average interest rate on a credit card is 24.92%, according to LendingTree.
According to the 2024 U.S. Houzz & Home Survey, cash from savings (83%) remains the most common way homeowners finance their renovation projects, but credit card use is on the rise. Houzz surveyed 33,830 homeowners ages 18 and older between Jan. 19 and Feb. 27.
About 37% of homeowners pay for renovations with a credit card, up from 28% in 2022, according to a Houzz survey.
Even though it’s cheaper to use your own capital, it’s still risky: Interest rates are high due to successive rate hikes by the Federal Reserve, and you need to come up with a plan to pay down your debt.
Renovations increase value
Jessica Lautz, deputy chief economist at the National Association of Realtors, says it makes sense to use your home’s equity to invest in other homes: Not only do such projects help preserve your home, they can also increase its value, potentially resulting in a higher profit when you eventually sell.
According to NAR’s latest Remodeling Impact Report, the highest percentage of costs recovered for exterior projects was reroofing at 100%. For interior projects, the highest percentage of costs recovered was for refinishing hardwood floors at 147% and installing new wood flooring at 118%.
“We’ve found that hardwood floors are more appealing to everyone,” Lautz says, “and in areas like the roof, it’s a major undertaking. … People might want to get the roof done before they move into the house and make sure the roof is in working order.”
Use your home equity for a vacation or big purchase
More than one in 10 millennial homeowners say a vacation or a big-ticket purchase is a good reason to tap into their home equity, according to Bankrate — but experts say this is something you “shouldn’t do.”
“If you have to pay for your own vacation, you can’t afford to take a vacation,” McBride said.
Additionally, he explained, big-ticket items such as cars and electronics lose value from the time of purchase.
“You’re not just buying a depreciating asset, you’re financing the purchase of that depreciating asset,” McBride added.
