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3 pros and cons of using home equity in 2024
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Last year was a difficult one for borrowers. The cost of everything from mortgages to personal loans to credit cards spiked due to higher interest rates sparked by elevated inflation. And while this may have been beneficial for savers with high-yield accounts, it was largely problematic for millions of borrowers. That said, 2023 also had some significant, positive developments, particularly for existing homeowners.
Thanks to a combination of factors, the amount of equity the average homeowner has rose last year to around $200,000. That’s a significant amount of money, particularly considering that most lenders will let you borrow 80% of that equity to use as you wish. And just weeks into the new year, there may be plenty of reasons to tap into it. But what are the pros and cons, exactly, of using home equity in 2024 versus another year? Below, we’ll explore a few of each to help borrowers make a better-informed decision.
Start by exploring your home equity rate options here to see what you qualify for.
3 pros of using home equity in 2024
Here are three timely benefits of using home equity in 2024.
It’s (still) cheaper than the alternatives
While rates ticked up on virtually all borrowing products last year, including home equity loans, they’re often still significantly cheaper than the alternatives. While personal loans can be in the double digits and credit cards hover around 20% right now, rates on home equity loans and home equity lines of credit (HELOCs) are 8.91% and 9.31%, respectively. That could add up to significant savings when measured against the alternatives.
See what home equity rate you could secure here.
You can potentially get more money
Another way that home equity borrowing is beneficial compared to other options is the amount you can receive. Most borrowers will let you borrow 80% to 90% of your existing home equity. Using that average of $200,000 as an example, then, you could withdraw $160,000 to $180,000. And that’s just the average. If you have more equity, you could borrow even more.
It could be tax-deductible
If you take out a home equity loan or HELOC this year it could help you now — and boost your tax return next year. That’s because the interest on either option is tax-deductible if used for qualifying purposes.
“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS says. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”
3 cons of using home equity in 2024
And here are three drawbacks of using home equity this year.
Rates could drop post-application
Many economists and experts are predicting interest rate cuts this year, which could be good for those who apply when rates are lowered — but slightly troublesome for those who previously locked in a higher rate. But there are alternatives to avoid this scenario.
Home equity loan users could always refinance their loan if rates drop low enough to justify the move. Or, borrowers could apply for HELOCs now, which come with variable interest rates and are likely to fall whenever the Fed makes any cuts.
Your equity could change
Interest rate cuts could also affect your home equity. If rates come down, it’s expected that homebuyers will enter the market. This could, theoretically, lead to an increase in home prices with so many buyers competing. Or it could result in a home price drop if some buyers want to sell quickly.
It’s too early to know for sure what will happen, but don’t be surprised if the amount of equity that’s usable in January 2024 is different by the end of the year.
Your home is the collateral
While the economy is on the rebound, there’s still work to do post-pandemic and post-decades-high inflation. So there’s still some volatility.
Combined with political turmoil abroad and political unrest at home, some borrowers may want to think twice about taking their existing money out of their investment, particularly when they know that the home serves as collateral in these situations. Crunch the numbers and be as certain as possible about acting in today’s climate before submitting your application.
Start researching your home equity borrowing options online now.
The bottom line
The decision to use your home equity in 2024 is a personal one. For some, the lower interest rates, significant amount of available equity and interest tax deduction for qualifying home repairs and renovations may be worthwhile. But the year is still young and others may want to be more careful, especially if they think rates could drop after they apply. Their existing equity could also change alongside today’s real estate market, and the decision to use their home as collateral is an important one to get right.
Not sure if a home equity loan or HELOC makes sense for you this year? Learn more here today.
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Russian President Vladimir Putin approved changes to his country’s nuclear doctrine this week, formally amending the conditions — and lowering the threshold — under which Russia would consider using its nuclear weapons. Moscow announced Tuesday that Putin had signed off on the changes to the doctrine, formally known as “The basics of state policy in the field of nuclear deterrence,” as Ukraine launched its first strike deeper into Russia using U.S.-supplied missiles.
The updated doctrine states that Russia will treat an attack by a non-nuclear state that is supported by a country with nuclear capabilities as a joint attack by both. That means any attack on Russia by a country that’s part of a coalition could be seen as an attack by the entire group.
Under the doctrine, Russia could theoretically consider any major attack on its territory, even with conventional weapons, by non-nuclear-armed Ukraine sufficient to trigger a nuclear response, because Ukraine is backed by the nuclear-armed United States.
Putin has threatened to use nuclear weapons in Ukraine multiple times since he ordered the full-scale invasion of the country on Feb. 24, 2022, and Russia has repeatedly warned the West that if Washington allowed Ukraine to fire Western-made missiles deep into its territory, it would consider the U.S. and its NATO allies to be directly involved in the war.
U.S. officials said Ukraine fired eight U.S.-made ATACMS missiles into Russia’s Bryansk region early Tuesday, just a couple days after President Biden gave Ukraine permission to fire the weapons deeper into Russian territory. ATACMS are powerful weapons with a maximum range of almost 190 miles.
“This is the latest instance of a long string of nuclear rhetoric and signaling that has been coming out of Moscow since the beginning of this full scale invasion,” Mariana Budjeryn, Senior Research Associate at Harvard’s Belfer Center, told German broadcaster Deutsche Welle when the change to Russia’s nuclear doctrine was first proposed last month.
“The previous version of the Russian doctrine adopted in 2020 allowed also a nuclear response to a large-scale conventional attack, but only in extreme circumstances where the very survival of the state was at stake,” Budjeryn noted. “This formulation has changed to say, well, extreme circumstances that jeopardize the sovereignty of Russia. Well, what does that really mean and who defines what serious threats to sovereignty might constitute?”
Budjeryn said Russia had already used weapons against Ukraine that could carry a nuclear payload.
“Russia has been using a number of delivery systems of missiles that [can] also come with a nuclear warhead. So these are dual capable systems. For example, Iskander M short range ballistic missiles. Those have been used extensively in this war by Russia. So when we have an incoming from Russia to Ukraine and we see that it’s an Iskander missile, we don’t know if it’s nuclear tipped or conventionally tipped,” Budjeryn said.
Ukrainian parliamentarian Oleksandra Ustinova, who says she helped lobby the Biden administration for the permission for Ukraine to fire the ATACMS deeper inside Russia, told CBS News she didn’t believe Putin would actually carry out a nuclear strike.
“He keeps playing and pretending like he’s going to do something,” Ustinova said. “I’ve been saying since day one that he’s a bully, and he’s not going to do that.”
contributed to this report.
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