4 things home equity borrowers should do this December, according to experts
Home equity levels are high these days. In fact, the average homeowner currently has over $300,000 of it, according to a recent report. That's equity you can borrow against to make repairs, renovate, cover unexpected bills, or even pay off debt, if the numbers work out right. But is this December the best time to be doing that? It depends.
Are you considering tapping into your equity with a home equity loan or home equity line of credit (HELOC) for the new year? We spoke to experts about what to consider now, how to time it right, and what you can do today to ensure success.
Start by seeing how much home equity you'd be eligible to borrow here.
4 things home equity borrowers should do this December, according to experts
Don't rush into the home equity borrowing process this month without knowing exactly what steps to take. Here are four that experts recommend now:
Determine how much equity you have
Before you can determine if now's the right time to tap your equity, you'll want to calculate how much you have. To do this, just take your home's current market value and subtract your mortgage balance. That's your equity — or the portion of your home you actually own and can borrow against.
That noted, home values have been declining lately in many markets, which means equity levels are falling, too. According to Zillow, more than half of U.S. homes have lost value in the last year — the highest share since 2012. At the same time, values here could easily rise next year, too, so be careful with how much you actually borrow.
"I expect equity in general to increase but at a slower rate than the 10 years preceding today," says Jordan Del Palacio, loan partner at Churchill Mortgage. "It will also vary by market."
You can talk to a real estate agent in your area to get a pulse on where home values are headed in your area. This can help you decide if tapping your equity now or later next year is the better choice.
Just be careful: If you take out a home equity loan or HELOC now, and your home value falls later, you may wind up owing more to the lender than your home is worth. That's called being upside down on your mortgage and can put you in a financial bind if you need to sell.
Learn more about your current home equity borrowing options here.
Look at the interest rates on all your current debts
You should also take this time to assess all the interest rates on your current debts — any loans, credit cards, or lines of credit you might have out. Often, home equity loans and HELOCs have lower rates than other consumer borrowing products, making them a smart way to pay off and consolidate debt.
The current average rate on home equity loans sits in the low 8% range, while HELOC rates are slightly lower, averaging 7.81%. If the rate on your other loans or cards is significantly higher than these, then pulling the trigger on a home equity product now could be the right move, as it will reduce your interest costs and make paying off your debts easier.
"We are seeing a lot of people look to HELOCs and home equity loans to consolidate more expensive debt payments into a more manageable monthly payment," Del Palacio says.
Take note, though: The Federal Reserve is largely expected to keep cutting rates, so if you're acting now, experts say a HELOC is likely the way to go. These have variable rates that shift with the market, so if rates do fall, the rate on your HELOC will, too.
"There is no disadvantage in taking out a HELOC now or waiting until 2026," says Jeremy Schachter, branch manager at Fairway Home Mortgage. "If the Feds lower the rates, your rate on the HELOC will also lower."
If, however, you need the more consistent payment and rate that comes with a home equity loan, experts say waiting it out (until about mid-year, per Del Palacio), when rates on these products will likely be lower, could be advantageous.
"For an installed home equity loan, there is a possibility that rates can fall further, and you can get a loan with lower locked-in rates," says Roland Chow, a financial planner at Optura Advisors. "Just don't expect rates to go back to the lows experienced prior to 2022."
Evaluate potential repairs and renovations
You should also take a minute and assess your home for repairs or updates it may need. Home equity loans and HELOCs are popular tools for covering these types of costs, as they're typically more affordable than other options. So, if your home needs urgent fixing and you'd otherwise turn to a credit card or personal loan (which currently boast average rates over 20% and 12%, respectively), then now's probably a good time to tap that equity.
"Most people are looking to these products in response to a more urgent need, whether that is a home project or financial relief," Del Palacio says. "I don't think there is necessarily much of an advantage to waiting."
They can be especially smart if you want to finance a project that will improve your home's value — and therefore your equity.
"Remodeling outdated kitchens or bathrooms, adding square footage to your home, or improving energy efficiency with new windows or doors are great ways to use your funds," Schachter says. With the right project, you may even be eligible to deduct the interest paid on the HELOC or home equity loan from your taxes for the years in which it was utilized.
Make a plan
If borrowing from your home equity loan is anywhere on your radar, then use this December to make a plan. Start researching lenders, determine how much you need to borrow, and prepare your finances for the monthly payment the loan will come with.
Most importantly, outline how you will use the funds, and talk to a financial professional or loan officer to walk through the risks.
"You should only be opening a second mortgage if there is a clear intent for how you are utilizing the loan," Del Palacio says. "If it negatively impacts your financial picture, it could lead to a scenario where the only way out is selling your home in a rush. This will mean walking away with less cash than you otherwise would have."
