Home equity is 'not like bread,' expert says — 'It won't go stale.' Here's when it makes sense to tap it

Homeowners are sitting on $17 trillion in equity as of the end of the first quarter of 2024, according to CoreLogic. The average homeowner gained $28,000 in equity compared to a year earlier.

For many people, there’s no need to touch that money.

Home equity is “not like bread,” said Greg McBride, chief financial analyst at Bankrate. “It won’t go stale if it just sits there.”

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One exception: If you need to make major home improvements or repairs, tapping home equity can be a viable solution, experts say.

Among polled homeowners, 55% see home improvements or repairs as a good reason to tap home equity, according to a new survey by Bankrate. The site surveyed 2,294 U.S. adults, including 1,133 homeowners, in late June.

Using home equity is “certainly a less expensive borrowing option than resorting to personal loans or credit cards,” McBride said. 

As of August 7, the current average home equity loan interest rate is 8.59%, according to Bankrate. The average HELOC interest rate is 9.37%.

To compare, the average personal loan interest rate is 12.38% , Bankrate found. The average credit card interest rate stands at 24.92%, according to LendingTree.

While cash from savings continues to be the most common way homeowners fund renovation projects, or 83%, credit card use has increased, according to the 2024 U.S. Houzz & Home Study. Houzz surveyed 33,830 homeowners of ages 18 and older from Jan. 19 to Feb. 27.

About 37% of homeowners paid for their repair projects with credit cards, up from 28% who did so in 2022, Houzz found.

While tapping equity is cheaper, it still has risks. Rates are higher given the Fed’s spate of rate hikes, and you need to go in with a plan to pay off the debt.

Using home 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 house, they may even enhance its value, boosting profits when you eventually sell.

The highest percentage cost recovered for exterior projects was from new roofing, at 100%, according to the latest Remodeling Impact Report by NAR. For interior projects, the highest percentage cost recovered was from refinishing hardwood floors, at 147%, and installing new wood flooring, at 118%, NAR found.

“We’ve found that hardwood floors have more universal appeal,” said Lautz. “For something like a roof, it’s a big project … People may want to have that completed before they move into a home, make sure that the roof is in good working order.”

More than one in 10 millennial homeowners said vacations or buying big-ticket items are good reasons to tap your home equity, according to Bankrate. But experts say this move is a “don’t.”

“If you have to finance the cost of your vacation, you can’t afford the vacation,” McBride said.

Plus, big-ticket items, such as a car or electronics, are depreciating in value from the point of purchase, he explained.

“You’re not only buying a depreciating asset, but you’re financing the purchase of that depreciating asset,” McBride added.