Home equity borrowing can be a smart way to access large sums of money, especially now when interest rates on alternative borrowing options are much higher. In today’s rate climate, specifically, both home equity loans and home equity lines of credit (HELOCs) come with significantly lower rates than personal loans and credit cards. And they often come with much larger sums of money that borrowers can access.

Like all financial products and services, however, there are some easy-to-make mistakes that home equity borrowers should carefully avoid. These are particularly important to avoid when borrowing equity as the home serves as collateral in these scenarios and owners could lose their property if they don’t pay back all that they’ve borrowed. But the mistakes to avoid in a different time and climate don’t always apply to this form of borrowing. To that end, below we’ve gathered some timely home equity mistakes to avoid this July. 

Start by seeing what home equity loan interest rate you’re eligible for here.

4 home equity mistakes to avoid this July

Ready to tap into your home equity now? Then be sure to avoid these mistakes before doing so.

Waiting for home values to rise

Home values are high right now with the average homeowner having around $300,000 of home equity to potentially utilize. But home values, and therefore home equity, can change over time. If the value of your home drops, for example, in the face of poor economic conditions, then your available equity will, too. 

And considering that today’s home equity levels are near record highs, it would be a mistake for most homeowners to wait for values to rise even further. Instead, consider acting now while you have a significant amount of financing available.

See how much home equity you could tap into here now.

Choosing a home equity loan over a HELOC

It may be tempting to choose a home equity loan over a HELOC right now thanks to the former’s slightly lower interest rate. But that could be a mistake with a cut to the federal funds rate looming. If that does occur, rates that lenders offer borrowers will drop, too. 

And home equity loans have fixed rates, meaning you’ll need to refinance to get the new, better rate. HELOCs, however, have variable rates subject to change over time. So it’s probably better to go with this option, pay slightly more to start, but then be positioned for a lower rate when rates start to drop.

Not shopping around

It’s always an error to not shop around when looking for the most cost-effective borrowing option, but particularly now. Remember that the federal funds rate doesn’t directly dictate what lenders will offer borrowers. Accordingly, some have already started lowering rates on their products in anticipation of a formal rate cut to come. But you’ll need to shop around to find these lower-rate options. And that may involve using a different lender than the one who currently finances your mortgage loan.

Start shopping for home equity loan lenders here now.

Not monitoring the rate climate

The interest rate climate is constantly changing, particularly now that inflation has been cooling month-to-month. But a tick-up in the inflation rate (the next report comes out July 11) could affect rates on lending products. And the next Fed meeting (scheduled to begin July 30) could as well. So borrowers should carefully monitor the rate climate in July, especially on these dates, so that they’re better prepared to take advantage of any positive rate news when it’s announced. 

The bottom line

Home equity borrowing is particularly beneficial now, thanks to lower rates than most alternatives and higher amounts of financing to utilize. But borrowers will need to take a strategic and nuanced approach to truly capitalize. This extends to the avoidance of simple but timely mistakes like waiting for home values to rise further, choosing a home equity loan over a HELOC, not shopping around to find the best (and cheapest) option and not monitoring the rare climate for timely opportunities. By skipping these mistakes now, borrowers will position themselves for home equity financial success both this July through the time their loan is fully paid off.