Considering using your home equity? How to know if it's right for you.

Today's rising interest rate environment has made borrowing much more expensive. But one way homeowners may be able to save is by using the equity they've built up in their homes. 

Whether you're a relatively new homeowner who has seen your home's value skyrocket in the past few years or you've lived in the same house for decades and paid down a significant amount of your mortgage, home equity loans and lines of credit (HELOCs) can be a great resource.

However, while you may still find lower rates than other loans, borrowing from your home's equity has also gotten more expensive in recent months. And fluctuating home prices may make this option better for some homeowners than others. 

If you're looking for the best way to borrow while rates are high, there are some ways you can decide if home equity is the right path for you.

Check out today's top home equity rates here to see if it makes sense for you.

How to decide if using home equity is right for you

These are multiple instances in which you may benefit from using your home equity today. Here are three to know:

Your home value is high

Following a decade of growth, home prices in some parts of the country have started to decline over the past few months. In fact, last month, only the Northeast and Midwest regions saw increased home values, while both the South and West experienced price drops, according to the National Association of Realtors (NAR). 

If prices are still elevated where you live, that could be a reason to tap into home equity sooner rather than later. The value of your home can have a big effect on the amount of equity you have — and therefore, the amount you can borrow. 

Say, for example, you originally owed $300,000 on your mortgage when you bought your home. Today, the home value has increased to $400,000 and you've paid your mortgage down to $250,000. That means the equity you own in the home today is $150,000. 

Now, say home prices fall in your area and in a year your home is valued at $320,000. In that time, you also paid down your mortgage further and owe $220,000. Even though you reduced the amount you owe, you now only have $100,000 in equity because the overall home price dropped.

Compare home equity options you can qualify for now.

You can get a tax deduction

One of the best uses of a home equity loan or HELOC is for home renovations or remodeling projects. The incentive? You can qualify for tax deductions.

The IRS allows you to deduct interest on home equity loans and lines of credit "if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the agency says. Among other requirements, the home you use to secure the loan must be your main home or a second home that's a qualified residence. 

That benefit alone could make this a good choice if you're borrowing money for home renovations since you won't find these tax deductions with personal loans or credit cards. Just make sure you understand the requirements before you borrow, so you can ensure you qualify before tax season.

The rate is lower than the alternatives

A big benefit of home equity loans and HELOCs is the potentially lower interest rate you can get — especially if your other options are personal loans or credit cards. 

Depending on your credit score, you may be able to qualify for a home equity loan or HELOC around 8% APR. Currently, personal loan rates aren't that far off, but many range from as low as 8% to over 20% APR. Credit card interest rates, on the other hand, are largely in the double digits, and frequently top even 20% to 25% APR.

However, it's important for any homeowner to keep in mind that home equity loans and HELOCs are secured by your home. That makes it even more important to pay the amount you owe in full and on time. If you default on the loan, you could risk losing your house.

The bottom line

If you're a homeowner looking to borrow money for anything from a renovation project to debt consolidation or your child's college education, you could be sitting on a valuable resource in your home's equity. 

Even as interest rates rise, home equity loans and HELOCs can make a good choice for some — especially if your home value is still high, boosting your overall equity. Depending on what you use the loan for, tax deductions and lower interest rates compared to borrowing alternatives could be another reason to tap into your home equity today.

Find the best home equity rates available now.