3 Reasons You Should Avoid Borrowing Against Your Home Right Now
3 Reasons You Should Avoid Borrowing Against Your Home Right Now
Liz Weston Wed, September 7, 2022 MarketWatch
All that equity you're sitting on is tempting, but just because something can be done, doesn’t mean it should be done.
Soaring real estate values mean many homeowners are awash in equity — the difference between what they owe and what their homes are worth. The average-priced home is up 42% since the start of the pandemic, and the average homeowner with a mortgage can now tap over $207,000 in equity, according to Black Knight Inc., a mortgage and real estate data analysis company.
Spending that wealth can be tempting. Proceeds from home equity loans or lines of credit can fund home improvements, college tuition, debt consolidation, new cars, vacations — whatever the borrower wants.
But just because something can be done, of course, doesn’t mean it should be done. One risk of such borrowing should be pretty obvious: You’re putting your home at risk. If you can’t make the payments, the lender could foreclose and force you out of your house.
Also, as we learned during the Great Recession of 2008-2009, housing prices can go down as well as up. Borrowers who tapped their home equity were more likely to be “underwater” — or owe more on their houses than they were worth — than those who didn’t have home equity loans or lines of credit, according to a 2011 report by CoreLogic, a real estate data company.
Other risks are less obvious but worth considering.
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