Cash In on Your Home Equity

A home equity line of credit or loan can help you fund home renovations or refinance high-rate debt, but consider other uses, too.

- EMMA PATCH

For the nearly two-thirds of Americans who own a home, tapping into home equity can be an affordable and flexible way to borrow money. Of the two main ways to access your home equity-a loan and a line of credit a home equity line of credit (HELOC) is the most flexible because it lets you borrow and repay funds as you need them.

HELOCS and home equity loans are usually available at relatively low interest rates because they are secured by your home-which also makes them riskier for you. HELOC rates recently averaged 7.7%, according to Bankrate .com, and home equity loans averaged 7.8%. If you have a strong credit score (often 740 or above), that will help you qualify for a lower rate.

You can lock in the rate and the payments for a loan, but HELOCs usually have a variable rate-often tied to the prime rate that rises or falls as the Federal Reserve changes short-term rates, and you typically have the option to pay only interest on your debt for a number of years. To fight inflation, the Fed is expected to continue pushing up rates in 2023, although it may lower them if a recession takes hold. (For details on how HELOCS work, see the box at right.)

How to use a HELOC. You can draw on your home equity for just about anything to buy an investment property, finance education expenses for your children or invest in your own business. But the most common (and often the most beneficial) uses of a home equity line of credit are home improvements and debt consolidation.