Homeowners are currently holding onto a massive $17 trillion in equity, with the average homeowner seeing a gain of $28,000 compared to the previous year. According to experts like Greg McBride from Bankrate, home equity is a valuable asset that won’t lose its value by simply keeping it untouched.
While it’s generally advised to leave home equity alone, there are instances where tapping into it can be a smart move. Major home improvements or repairs are considered valid reasons to utilize home equity, according to a survey conducted by Bankrate. With lower interest rates compared to personal loans or credit cards, using home equity can be a cost-effective solution for funding such projects.
Despite the advantages, there are risks associated with tapping into home equity. With higher interest rates due to recent rate hikes by the Federal Reserve, borrowers need to have a solid repayment plan in place. While investing in home improvement projects can increase the value of the property, using home equity for vacations or buying depreciating assets, as some millennials do, is not advisable.
Investing in your home via home equity can have long-term benefits. Projects like installing new roofing or refinishing hardwood floors can not only preserve the property but also enhance its overall value. The highest percentage cost recovery for exterior projects was observed with new roofing, while interior projects like refinishing hardwood floors were also found to have significant returns.
According to experts like Jessica Lautz from the National Association of Realtors, using home equity to enhance your property can be a wise decision. It is essential to choose projects that have widespread appeal and can increase the value of your home. While vacations or big-ticket purchases may seem tempting, experts warn against using home equity for such expenses due to the risks involved in financing depreciating assets.
While home equity can be a valuable resource for homeowners, it should be used judiciously. Investing in home improvements that enhance the property’s value can yield long-term benefits, while using equity for non-essential expenses poses financial risks. Before tapping into home equity, it is crucial to weigh the benefits against the potential drawbacks and have a solid repayment plan in place.
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