2 Safe Ways to Leverage Home Equity This December (And 2 Dangerous)

When used properly Home equity can be a vital financial lifeline for homeowners in need of additional funds. Be it with one Home Loan, Home Equity Line of Credit (HELOC) or another source, home equity can give homeowners access to a large, six-figure sum of money, often at an affordable price interest rate many points lower than common alternatives. And since the average homeowner has around $319,000 worth of home equity, according to the November 2024 ICE Mortgage Monitor report, there’s likely plenty of money to use both now and potentially for additional expenses in the future.

However, using your home equity must be a carefully considered and strategic decision. If you are unable to repay the entire amount borrowed, you may be putting your home at risk since the property serves as collateral in these exchanges. To understand this risk, it’s helpful to know some safe (and dangerous) ways to deploy home equity in December. Below we list two of them that homeowners should know before they get started.

See what interest rate you might qualify for on a home equity loan here.

2 Safe Ways to Leverage Home Equity This December

Not sure if it’s safe to use home equity this month? Here are two of the safer (and smarter) ways to do this:

Home repairs and renovations

Home repairs and renovations are currently one of the better ways to access your home equity. Not only can this potentially increase the value of your home (and therefore equity), but if you qualify for IRS-eligible home projects, you can deduct the interest on a home Home Loan or HELOC of your taxes when you file your next tax return. And if you receive the payout this month, you may be eligible for a partial deduction when you prepare your tax return in January and February. However, waiting until 2025 could potentially delay this valuable deduction until 2026.

Find out more about the tax advantages for home loans online now.

Consolidating high-interest debt

Interest rates on home equity loans and HELOCs are currently both below 9% for qualified borrowers. Personal loan interest rates are now around 13% Interest rates on credit cards have recently risen sharply to an average of just over 23%. So if you want Consolidation of one of the latter high-interest debts If the value is lower, it makes sense to do this through your home equity. This is generally a smart way to address your overall home equity, but it can be especially helpful this December Vacation expenses is expected to exceed the 2023 value.

2 Dangerous Ways to Leverage Home Equity This December

Although everyone’s financial situation is different, there are two dangerous ways homeowners should avoid using their home equity this December:

To pay for vacation expenses

It can be tempting to use your home equity to finance your holiday expenses this year. Because a HELOC works similarly to a credit card, you may be thinking about using your home equity to finance purchases large and small – and take care of expenses in January and 2025. But that would be a mistake. Home equity is an important source of financing that should be used in a way that improves – not harms – your financial health. Using it for home repairs and consolidating debt will accomplish that goal, but using it for extra holiday gifts won’t.

Buy depreciable assets

It’s generally a mistake to use your home equity to purchase a depreciating asset like a vehicle, and it’s still a mistake to do so now, even if you can finance it at a lower interest rate than you can afford may be able to secure it with a car loan. Instead, consider using your home equity to purchase assets that will increase in value (e.g second homefor example) and refrain from using it for something that will drop in price almost immediately.

Learn more about the best (and worst) ways to use your home equity here.

The end result

Your home can provide access to important financing. But it should not be accessed carelessly or unstrategically either. By using it for the reasons above and leaving it out for the dangerous reasons, you may be able to increase both the value of your home and your financial health, putting you on more solid financial footing for the new year.