Consumer Reports: Tapping Equity Could Benefit Those Unwilling to Sell

In outlining a series of possible strategies that could allow homeowners to benefit from rising home prices without actually selling their property, home equity tapping is listed as a distinct possibility – with caveats – in a piece at Consumer Reports written by Tobie Stanger.

“If your home equity has gone up, you might qualify to borrow more than in the past,” the article reads. “Borrowing based on the equity in your home is a relatively inexpensive way to finance a home improvement project.”

Citing figures from Bankrate, the article also details how interest rates on floating-rate Home Equity Lines of Credit (HELOCs) currently average out to just about 6 percent. “That’s comparable to the best personal-loan rates offered by national personal-loan lenders like Lending Tree and SoFi,” writes Stanger.

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There are also other advantages HELOCs have over personal loans, including having the ability to borrow small amounts of money over time to keep interest rates low, and longer repayment periods that can result in smaller monthly payments. A HELOC also has advantages over the use of a credit card in paying for home improvement projects, due to the double-digit interest rates that often accompany credit cards.

“But be careful about how much you borrow,” Stanger warns. “Many homeowners who refinanced or took out large home equity lines leading up to the Great Recession ended up owing more than their homes were worth when prices plummeted,” according to Keith Gumbinger, vice president at mortgage data provide HSH.com.

While Stanger points out the advantages of using home equity in funding projects like these, he also takes a far more cautionary approach to the use of a reverse mortgage in tapping a home’s equity.

“Be wary of borrowing with a reverse mortgage, an option for homeowners ages 62 or older,” Stanger writes. “If after borrowing you can’t afford the insurance, taxes, maintenance, or monthly debt payments, you could lose your home.”

For more, read the full article at Consumer Reports.