Is Borrowing From Home Equity a Good Idea?


    Taking out a home equity loan is the same as borrowing money against your house. Many homeowners use home equity lines of credit to secure their assets (HELOCs). By doing this, they can borrow against the value of their home and use the money for any purpose.

    The difference between your home’s market value and what you owe on it—is a valuable asset, especially in today’s soft real estate market. For this reason, it is often an appealing option for people facing difficult times. However, a home equity loan can put your financial future at risk, so homeowners often ponder whether borrowing from home equity is a good idea.

    In this article, we will discuss whether borrowing from home equity is a good option.

    What is Home Equity?

    The difference between the outstanding debt of your property on your mortgage and its market value is known as home equity.

    A home equity loan can be used to purchase a new car or fund a college education, but it can also finance various debt consolidation loans.

    Home equity loans are often referred to as second mortgages because their home secures them. A second mortgage allows you to borrow money against the value of your house without having to pay off any existing debt first.

    The interest rate on a home equity loan is usually higher than that of other loans because there is more risk involved for lenders. If you fail to make payments on your borrowed home equity loan, the lender can take back your property and sell it to recover its investment.

    How to Qualify for a Home Equity

    When you’re considering taking out a home equity loan, the first thing to consider is whether or not you can qualify for one. Home equity loans are offered to borrow money against their home’s value. The amount of money you can borrow from your home depends on how much equity you have in the house and what type of loan you get.

    You can learn more about the process at,

    For example, some loans allow you to borrow the entire amount of your equity, while others let you borrow just a portion of that amount.

    If you’re thinking about taking a home equity loan, here are some things you should know:

    • How much equity do you have in your home?
    • How much debt do you already have on it?
    • What kind of loan are you getting?

    Some lenders will let you borrow up to 85% or 90% of the value of your home, while others will restrict it to less than 50%. You’ll also need at least a 20% down payment to avoid paying mortgage insurance.

    How to Qualify for a Home Equity

    You’re essentially refinancing your own mortgage when you borrow from your home equity. You can use the money to pay off high-interest debt or consolidate credit card debt, or use it for any other purpose.

    However, there are some pros and cons to consider before making this type of loan.


    • Low-interest rates: Home equity loans usually carry lower interest rates than other types of debt, especially if you have good credit scores. With some lenders, you may even get an interest rate lower than what’s available on a credit card or personal loan without putting down any money upfront.
    • No collateral required: Unlike some other types of loans that require collateral — such as auto title loans, home equity loans don’t require any collateral. This makes them ideal for people who don’t own any assets besides their homes or don’t want to risk losing those assets.


    • High fees and low limits: You have less cash available after paying off the loan than if you had taken out a traditional loan with a fixed rate and term length. For example, if you take out $50K at 4%.

    In a nutshell

    Home equity loans are a fairly common way to finance things in your home. A study from early 2015 found that 47 percent of American adults have borrowed from their home equity at some point. What’s more, 74 million Americans are currently using their home equity for other things, such as improving the appearance of the property or refinancing older debt.

    If you have enough equity in your home and a good enough reason to borrow money, it may make sense to consider a loan against your home. However, many people don’t realize when they might take out a loan against their home. It’s essential to consult with your mortgage holder to determine whether borrowing from home equity is a good idea.



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