Borrowing against equity

Pros and Cons of Tapping Your Home Equity

Home equity is the cheapest large-scale borrowing most households can access. It is cheap precisely because your house is the collateral.

The case for

  • Rates far below credit cards and personal loans.
  • Large borrowing capacity relative to unsecured credit.
  • Long repayment terms and manageable payments.
  • Possible interest deductibility when funds substantially improve the home.

The case against

  • Your home secures the debt; missed payments can end in foreclosure.
  • Closing costs and appraisal fees erode small loans.
  • Variable-rate HELOC payments can rise sharply after the draw period.
  • Less equity means less cushion if local prices fall.

Uses that usually hold up — and ones that don't

Value-adding renovations, high-interest debt consolidation paired with a spending change, and genuine emergencies tend to justify the risk. Vacations, depreciating purchases, and speculative investments generally do not.

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Frequently asked

Often. Equity is your buffer against a market downturn and your cheapest source of funds when you truly need one.

Borrowing shortly before a sale reduces your proceeds and closing costs may not have been recovered. Usually worth avoiding.

Part of The Homeowner's Guide to Home Equity.

More on borrowing against equity

HELOC vs. Home Equity Loan: What's the Difference?

A side-by-side comparison of HELOCs and home equity loans: rates, draw periods, payments, and best uses.

Cash-Out Refinance vs. HELOC: Which Is Right for You?

When it makes sense to replace your mortgage versus adding a second line of credit against your home.

How Much of My Equity Can I Actually Borrow?

Most lenders cap you at 80–85% CLTV. Here is the math on what that leaves you.