Borrowing From Your Home Equity – How to Use it Responsibly

Home home equity represents a major financial investment and is one of the most valuable assets you own. In addition to the return you can expect when you sell your home, you can leverage this asset as a tool to help finance big-ticket expenses, reach other financial goals and overcome life’s twists and turns. But it’s important to know how to use this resource responsibly so you don’t put your house at risk.

Borrowing from your home’s equity can offer better rates than personal loans and credit cards, plus the interest may be tax-deductible. But you’ll have to weigh the costs and potential risks — including that you could lose your home.

Home Equity vs. Home Value: Key Differences

To determine your home’s current value, get a professional appraisal or use an online estimator. Then subtract the balance you still owe on your mortgage (or any other debts secured by your property, such as a home equity line of credit) from that figure to find out your home’s equity stake.

It’s a good idea to only borrow from your home’s equity for expenses that will improve your financial profile, such as making necessary home improvements or paying for education or medical bills. Avoid using it to cover routine expenses or luxury purchases, as these tend to depreciate and can perpetuate a cycle of living beyond your means. You should also think twice before dipping into your home’s equity to cover unexpected expenses that aren’t related to your health, job or family, such as the need to replace an aging roof or to pay for an unplanned trip.