How to Use Home Equity Responsibly

Thinking about tapping into your home equity to fund renovations, invest in a business, or pay off debt? Many homeowners are exploring these options as home values rise. This trend has led to a significant increase in home equity financing. According to TransUnion, HELOC originations surged 41% and home equity loans rose 29% in the second quarter of 2022 compared to the previous year.

Home Equity Financing: Diverse Options for Using Home's Value

Discover how home equity financing can be used for various financial goals.

But just because you can use your home equity doesn’t always mean you should. Tapping your home’s equity means entering into debt with your home as collateral, which means paying back your lender with interest. This fact should be top of mind when considering your home equity options and deciding if it’s really the best way to get the funds you need.

What are the risks of using home equity?

Tapping your home equity through a home equity loan, HELOC, or cash-out refinance has some risks.
• You could lose your home if you fall behind on your repayments.
• If you tap a high percentage of your equity and your home’s value drops, you could fall into a negative equity situation (also known as “being underwater”). This could make it challenging to sell your home.
• A HELOC or cash-out refinance may have a variable interest rate. So if rates rise, your repayment amount will rise as well.

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