2 Smart Ways to Use Your Home Equity This December

As December rolls in, many homeowners are exploring ways to leverage their home equity for financial flexibility. With the average homeowner sitting on roughly $319,000 in equity, according to the November 2024 ICE Mortgage Monitor, it’s tempting to tap into this resource. But home equity is not a “one-size-fits-all” financial solution—it demands a strategic approach. Below, we’ll guide you through two safe uses for your home equity and highlight two potentially risky ones to steer clear of.

2 Safe Ways to Use Home Equity

• Home Repairs and Renovations

Investing in home repairs and renovations is one of the wisest ways to utilize your home equity. Improvements that enhance your home’s value can boost your property’s equity and provide a tax advantage. For instance, IRS-eligible projects can allow you to deduct interest from your home equity loan or HELOC on your tax return. You might even secure a partial deduction for this tax season by acting now. Waiting, however, could delay these benefits until 2026.

• Consolidating High-Interest Debt

With holiday spending surging, consolidating high-interest debt through your home equity can be a financially sound move. Home equity loans and HELOCs typically have interest rates under 9%—much lower than personal loans (averaging 13%) or credit cards (averaging over 23%). This approach can ease your financial burden and streamline payments, setting you up for a stronger start to 2025.

2 Dangerous Ways to Use Home Equity

• Holiday Spending

Using home equity to fund holiday purchases may seem convenient but could lead to regret. A HELOC, which functions like a credit card, might tempt you to overspend on gifts or other seasonal expenses. Instead of creating short-term joy, this decision can harm your long-term financial health. Home equity should be reserved for meaningful investments, not fleeting festivities.

• Purchasing Depreciating Assets

Using home equity to buy items like vehicles or other assets that lose value over time is rarely advisable. This approach doesn’t maximize your home equity’s potential even with lower interest rates. Instead, focus on leveraging it to appreciate assets or investments that contribute to your financial growth.

Bottom Line

Home equity offers a powerful financial tool—but only when used wisely. You can safeguard your financial health by prioritizing smart strategies like home improvements and debt consolidation while avoiding risky moves like overspending or buying depreciating assets. Ready to make your next move in Orange County? Let’s connect and discuss your goals today!

Reference: “2 safe ways to use home equity this December (and 2 dangerous ones)” by Matt Richardson. Published on December 2, 2024.