The fact that home values ​​have risen in recent years is a bad thing for today’s buyers. But it puts current homeowners in a stronger financial position.

U.S. homeowners now have nearly $30 trillion in home equity collectively, according to the Federal Reserve Bank of St. Louis. That works out to roughly $200,000 per homeowner in clickable equity – meaning the amount of equity you can borrow against in order to continue to maintain 20% equity in your home.

If you’re sitting on a pile of home equity, you may be tempted to leverage it with a home equity loan or line of credit (HELOC). But before you go this route, think about the pros and cons.

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Why you could pay to tap your home equity

Some people use their home equity to do things like renovate their homes. You can also borrow against your home for a purpose unrelated to your home, such as a vacation. But a home equity loan, or HELOC, is generally best reserved for situations where you’re borrowing money to significantly improve your life — such as finishing a basement to add living space to your property or paying for a course that can help you grow your home. Career and increase your income over time.

The upside of leveraging home equity is that it may be fairly easy to qualify for borrowing, provided your credit is in reasonable shape. the reason? Home equity loans and HELOCs are secured by the homes they are borrowed against. If you fall behind on your payments, your lender can eventually force you to sell your home to get repayment. This reduces your lender’s risk – although it adds to your risk.

The problem of leveraging your home equity – today and in general

In general, borrowing against your home’s equity means putting yourself at risk of losing your home. This won’t happen if you make your payments on time like you’re supposed to. But who’s to say you’ll be able to do it? What if you lose your job or something else happens that leaves you without a paycheck for a while?

If you’re going to borrow against your home equity, make sure you understand the risks involved. And don’t take on payments that are an extension to begin with.

You may want to consider taking out a personal loan as an alternative to a home equity loan or HELOC. Personal loans are unsecured, so they are not tied to a specific asset. Defaulting on a payment is still a bad thing, because it can destroy your credit score. But you’re taking a different risk there – one that doesn’t necessarily involve losing the roof over your head.

Of course, in the wake of the Fed’s recent string of interest rate hikes, borrowing money in any form has become very expensive these days. For this reason alone, you may want to hold off on tapping into your home equity and wait for interest rates to fall.

But if you decide to go ahead with a home equity loan or HELOC, shop around with different lenders to see which ones have the most competitive rates. And read the terms of your borrowing agreement very carefully so you know exactly what you’re signing up for.

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