Why you should use your home equity right now

After surging during the pandemic, home prices are dropping — and home equity will follow suit.

After surging during the pandemic, home prices are dropping — and home equity will follow suit.

- I'm Carisha Swanson with "House Beautiful," and I'm in High Point, North Carolina at the Thomasville Showroom. I'm gonna show you how I infuse personality into this fantastic living room. After all, this is the space that you not only like to entertain, but also lounge in, so it's gotta do double duty. Here's five ways to do just that. (gentle upbeat music) For me, the foundation of a living room is a great sofa, and this Miles sectional from Thomasville has it all. I love the modern lines of it, but the little bit of tufting that's not over the top, it just adds a contemporary feel, and it comes in this great gray color that I think is fantastic, because it really can go with anything. One of the other great parts about it is you can fit a lot of people around here. So I tend to hog the chaise, because, hey, it's my house, but you know, there's still room for my friends to hang out, and we can throw our feet up on that ottoman, and just have a lovely evening. (gentle upbeat music) When I have friends over, we love to stream anything on television, but what I love about having a swivel chair, like these Cleos here, is that I can turn into the conversation, or we can all watch the television at the same time. What's great about these is they're neutral, meaning they're gonna be able to go with everything in your home. And this whitewash finish, is always gonna stand the test of time. It's classic, it's modern, and it's gonna look beautiful in this living room, or any other space you decide to bring it into. (gentle upbeat music) While this sectional does come with two toss pillows, I always like to infuse a little bit of myself into this space, and add a bunch of fun, throw pillows. What's great is you can add your own personality this way, add color, add texture. You can change them out whenever you want to, and you can play with them all over your house. Another thing is, it doesn't matter if you're in a hot or cold climate, I think everybody needs throws, and so I always have throws on the sofa, on the sectional, but also in a basket nearby, so that when I have people over, they can grab them and get cuddled up too. (gentle upbeat music) One way to infuse your personality into your own living room, is to put out books that you love. In this case, I'm obviously a design editor, so I have a ton of fantastic design books. I like to display them, I like to change them out over time, so that I'm not always looking at the same thing. And I love having a great tray, because with a tray you can move it off, throw your feet up and just be able to kick back. But what's really cool here, the ottoman actually opens up to be a storage ottoman. So, all these pillows and throws I have, if you need to clear out space, it can go right in there. (gentle upbeat music) Great lighting is fundamental to every space in the home, but in a living room, you really wanna have different layers of lighting, everything from your overhead, these fantastic pendants, to lighting behind your sofa or on a console. You just wanna have different levels of lighting throughout the room, so that no matter what time of the day it is, you can create the mood you want. And there you have it, this is five ways I brought my own personality and taste into this living room. I hope it inspires you to have some fun in your own space. (gentle upbeat music)

Why you should use your home equity right now

After surging during the pandemic, home prices are dropping — and home equity will follow suit.

PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlX3ZpZXdwb3J0X2RldGVjdGlvbi5qcyI+PC9zY3JpcHQ+PHNjcmlwdCBhc3luYyB0eXBlPeKAnHRleHQvamF2YXNjcmlwdCI+bXlmaVdhdGNoV2lkZ2V0KCdteWZpV2lkZ2V0XzAnKTs8L3NjcmlwdD4=Aly J. Yale is a contributing writer for Hearst, focusing largely on housing, real estate, and mortgages. She loves demystifying these sometimes complex topics and helping consumers make informed decisions about their finances. In her 15 years as a professional writer and editor, her work has been published in Forbes, Buy Side from the Wall Street Journal, Business Insider, Money, CBS News, US News & World Report, Fortune, and The Miami Herald. She has a bachelor’s degree in radio-TV-film and news-editorial journalism from the Bob Schieffer College of Communication at Texas Christian University and is a member of the National Association of Real Estate Editors. She lives by her reward-earning credit card and is holding onto her 2.75% mortgage rate for dear life.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.Home prices have trended downward in many cities over the past six months after hitting extraordinary highs during the pandemic. At the end of 2022, the median sale price was $479,500. But by the first quarter of 2023, it’d fallen to just under $437,000.While home prices dropping certainly mean fewer profits for those who sell a house, they also have a big impact on homeowners who are staying put. In fact, according to ATTOM Data Solutions, the recent decreases in home values have caused home equity levels to fall. As of the first quarter, just 47% of mortgaged homeowners were what ATTOM considers “equity rich” — down from 48.5% two quarters ago.What does falling equity mean as a homeowner? And how should it impact your financial decisions moving forward? Here’s what you need to know if you’re considering tapping into home equity in the near future.What it means to lose equityWhen your home loses value, you lose equity — meaning you own a smaller stake in the property.Here’s an example: Say you have a mortgage balance of $100,000 on your home, and the property is currently worth $400,000. In this scenario, you’d have a 75% equity stake in your home. If you sold it for its $400,000 worth and paid off the $100,000 balance, you’d get a whopping $300,000 in profit — or 75% of its value.Now imagine if that home’s value decreases — from $400,000 to $300,000, for example. If this happened, your equity stake would shrink considerably — and your possible sale profits with it. Falling equity doesn’t just reduce your profit potential, though. It also reduces your ability to borrow from your home. With products like home equity loans and home equity lines of credit (HELOCs), you can actually tap your home equity, turn it into cash, and use it for things like home improvements, college tuition, medical bills, or any other costs you might have. When your equity levels drop, there’s less to borrow from with these products.Why should you use your home equity now?If home equity levels keep trending downward, you may have less equity to borrow from down the line. For this reason, if you’ve been thinking of borrowing money — to cover renovations, to pay for upcoming tuition bills, or for any other reason, you may want to act soon (before your equity and potential loan amount shrink further.)“Home prices have softened in many markets, and may decline more,” says Kyle Enright, president of Achieve Lending. “That means that home equity, by extension, isn’t likely to grow significantly in the near future. For someone looking to tap home equity, this is a good time to consider doing so, considering that home values might not get much better for the foreseeable future.”Keep in mind that home equity lines of credit work like credit cards, so you could also use one as a potential financial safety net in case the country enters a recession or you fall on hard times. In this scenario, you’d take out a HELOC now — while your equity remains high — and then keep the line of credit open in case you need it. You’d only pay interest on what you actually use. “Homeowners can use funds from a HELOC for whatever purpose they have in mind,” Enright says. “Many people use the money to repair or renovate their homes, pay medical bills, make large expenses, or cover education costs after scholarships and other lower-cost options are exhausted.”Dangers of using your home equity nowThere are downsides to using your home equity now. For one, should your home’s value (and your equity stake) fall too much, it could make it hard to repay your home equity loan or HELOC. It could even put you upside down on your mortgage — meaning you’d owe more on the house than it’s worth. Your lender could also freeze your HELOC if your home loses too much value, which would keep you from accessing any additional funds. In some cases, they could modify your HELOC’s terms, too.“Some HELOC agreements contain provisions that allow the lender to reduce or freeze your credit line if the value of your home significantly declines,” says Shashank Shekhar, founder of InstaMortgage. Lenders may also worry about your ability to repay your loan and take more drastic measures, Shekhar says. “If there is a significant decline in your home value, your lender might be concerned about the increased risk of default,” Shekhar says. “They may choose to modify the terms of your HELOC or even request immediate repayment of the outstanding balance.”The best and worst reasons to tap your home equityYou can tap your home equity for many reasons, but some are wiser than others. Debt consolidation, for example, is a good one. This is because home equity loans and HELOCs tend to have much lower interest rates than other types of debts. So using one to pay off a credit card or personal loan can often save you significantly on long-term interest.Using equity toward home improvements is smart, too. It can increase the value of your property, result in a higher sale price, and, in some cases, even qualify you for a valuable tax write-off.Conversely, home equity isn’t a smart way to fund luxury purchases or vacations, nor is it a good stopgap if you’re having financial troubles. As Shekhar puts it, “If you have an unstable financial situation, relying on home equity to cover expenses can make it even worse.”Using your home equity is also ill-advised if you plan to sell your home soon. “If you want to sell your home soon, don’t tap into home equity,” Shekhar says. “The costs associated with obtaining the loan, such as closing costs or fees, might outweigh the benefits, especially if you won't have sufficient time to recoup the expenses before selling.”Bottom lineWith home equity levels falling, it’s a good time to think about your financial needs in the near term. If you think you may need to borrow from your home equity in the coming months, tapping it now — before home values can fall further — may be smart. Additionally, if you think you may want a financial safety net, it can also be a good time to consider using your home equity. Just make sure you understand the risks that come with using your home equity and know how you’ll repay your loan. But if you have a plan for using the money wisely and are willing to shop around for the best interest rates, this could be an ideal moment to take advantage of a high level of home equity.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.

Aly J. Yale is a contributing writer for Hearst, focusing largely on housing, real estate, and mortgages. She loves demystifying these sometimes complex topics and helping consumers make informed decisions about their finances. In her 15 years as a professional writer and editor, her work has been published in Forbes, Buy Side from the Wall Street Journal, Business Insider, Money, CBS News, US News & World Report, Fortune, and The Miami Herald. She has a bachelor’s degree in radio-TV-film and news-editorial journalism from the Bob Schieffer College of Communication at Texas Christian University and is a member of the National Association of Real Estate Editors. She lives by her reward-earning credit card and is holding onto her 2.75% mortgage rate for dear life.

Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.

Mobile app users, click here for the best viewing experience.

Home prices have trended downward in many cities over the past six months after hitting extraordinary highs during the pandemic. At the end of 2022, the median sale price was . But by the first quarter of 2023, it’d fallen to just under $437,000.

While certainly mean fewer profits for those who sell a house, they also have a big impact on homeowners who are staying put. In fact, , the recent decreases in home values have caused home equity levels to fall. As of the first quarter, just 47% of mortgaged homeowners were what ATTOM considers “equity rich” — down from 48.5% two quarters ago.

What does falling equity mean as a homeowner? And how should it impact your financial decisions moving forward? Here’s what you need to know if you’re considering tapping into home equity in the near future.

What it means to lose equity

When your home loses value, you lose equity — meaning you own a smaller stake in the property.

Here’s an example: Say you have a mortgage balance of $100,000 on your home, and the property is currently worth $400,000. In this scenario, you’d have a 75% equity stake in your home. If you sold it for its $400,000 worth and paid off the $100,000 balance, you’d get a whopping $300,000 in profit — or 75% of its value.

Now imagine if that home’s value decreases — from $400,000 to $300,000, for example. If this happened, your equity stake would shrink considerably — and your possible sale profits with it.

Falling equity doesn’t just reduce your profit potential, though. It also reduces your ability to borrow from your home. With products like , you can actually tap your home equity, turn it into cash, and for things like home improvements, college tuition, medical bills, or any other costs you might have. When your equity levels drop, there’s less to borrow from with these products.

Why should you use your home equity now?

If home equity levels keep trending downward, you may have less equity to borrow from down the line. For this reason, if you’ve been thinking of borrowing money — to cover renovations, to pay for upcoming tuition bills, or for any other reason, you may want to act soon (before your equity and potential loan amount shrink further.)

“Home prices have softened in many markets, and may decline more,” says Kyle Enright, president of Achieve Lending. “That means that home equity, by extension, isn’t likely to grow significantly in the near future. For someone looking to tap home equity, this is a good time to consider doing so, considering that home values might not get much better for the foreseeable future.”

Keep in mind that work like credit cards, so you could also use one as a potential financial safety net in case the country enters a or you fall on hard times. In this scenario, you’d take out a HELOC now — while your equity remains high — and then keep the line of credit open in case you need it. You’d only pay on what you actually use.

“Homeowners can use funds from a HELOC for whatever purpose they have in mind,” Enright says. “Many people use the money to repair or renovate their homes, pay medical bills, make large expenses, or cover education costs after scholarships and other lower-cost options are exhausted.”

Dangers of using your home equity now

There are downsides to using your home equity now. For one, should your home’s value (and your equity stake) fall too much, it could make it hard to repay your or . It could even put you upside down on your mortgage — meaning you’d owe more on the house than it’s worth.

Your lender could also freeze your HELOC if your home loses too much value, which would keep you from accessing any additional funds. In some cases, they could modify your HELOC’s terms, too.

“Some HELOC agreements contain provisions that allow the lender to reduce or freeze your credit line if the value of your home significantly declines,” says Shashank Shekhar, founder of InstaMortgage.

Lenders may also worry about your ability to repay your loan and take more drastic measures, Shekhar says.

“If there is a significant decline in your home value, your lender might be concerned about the increased risk of default,” Shekhar says. “They may choose to modify the terms of your HELOC or even request immediate repayment of the outstanding balance.”

The best and worst reasons to tap your home equity

You can tap your home equity for many reasons, but some are wiser than others. , for example, is a good one. This is because home equity loans and HELOCs tend to have much than other types of debts. So using one to pay off a credit card or personal loan can often save you significantly on

Using equity toward home improvements is smart, too. It can of your property, result in a higher sale price, and, in some cases, even qualify you for a valuable tax write-off.

Conversely, home equity isn’t a smart way to fund luxury purchases or , nor is it a good stopgap if you’re having financial troubles. As Shekhar puts it, “If you have an unstable financial situation, relying on home equity to cover expenses can make it even worse.”

Using your home equity is also ill-advised if you plan to sell your home soon.

“If you want to sell your home soon, don’t tap into home equity,” Shekhar says. “The costs associated with obtaining the loan, such as closing costs or fees, might outweigh the benefits, especially if you won't have sufficient time to recoup the expenses before selling.”

Bottom line

With home equity levels falling, it’s a good time to think about your financial needs in the near term. If you think you may need to borrow from your home equity in the coming months, tapping it now — before home values can fall further — may be smart. Additionally, if you think you may want a financial safety net, it can also be a good time to consider using your home equity. Just make sure you understand the risks that come with using your home equity and know how you’ll repay your loan. But if you have a plan for using the money wisely and are willing to shop around for the best interest rates, this could be an ideal moment to take advantage of a high level of home equity.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.

��vlog