Do or Do Not

How to know if you should borrow against your home equity

Amassing equity by paying down the mortgage on your property is a good thing. Equity refers to the amount of your home that you own. If your home is valued at $200,000 and you owe $100,000 on your mortgage, that means you have $100,000 in equity. One of the benefits of equity is that you can borrow against it. The question is, should you? Here’s a breakdown.

When you should borrow

One of the benefits of borrowing against your own home is that you typically pay less interest on the loan than if you applied for another type of loan. If you need money for an important issue, then borrowing against your home could be a good idea. As USA Today notes, some issues that might qualify for borrowing against your home include extensive home repairs or improvements, or paying down large debt.

You also might want to borrow against your home equity because the process of getting this loan as compared with other loans can be much easier. The lender will use your home as collateral, so there isn’t much risk to them if there’s equity built up.

When you shouldn’t borrow

Just like any other loan, if you borrow against your home equity, you’re going to have to pay it back. Where borrowing against your equity differs is that if you don’t pay the loan back, you could lose your home. Those are huge stakes. That means you should only consider a home equity loan for specific, important issues. For example, you shouldn’t borrow against your home to fund a lavish vacation. If you find yourself wondering if taking a home equity loan is worth it, you probably already answered the question.

Chris O'Shea

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