Best Time to Take Equity Out of Your Home

When it comes to home equity, timing can boost your gains—or cost you. The best time to borrow is when the market’s in your favor and your finances are solid.

Not every factor will line up perfectly, but we’ll show you how to get as close as possible.

In this article (Skip to...)

• Factors to consider when taking equity out of your home
• Mistakes to avoid when taking equity out of your home
• The bottom line

Factors to consider when taking equity out of your home

Finding the best time to take equity out of your house is not just about market changes. It also involves understanding important financial and personal factors that can affect your success.

So keep reading to discover what you need to know to make the smartest decision.

1. Low interest rates

It’s always good to borrow when interest rates are low. All other things being equal, a lower rate reduces both your monthly payments and the total cost of borrowing.

Of course, the rate environment is the factor over which we consumers have the least control. It is largely determined by how worried markets are about current and future economic performance, the Federal Reserve’s federal funds rate, and how warm or cool inflation is running now and in the future.

One warning: Often, the economy is stalling when interest rates are low. And lenders become jittery about the chances of borrowers being laid off, or being allocated fewer hours, or receiving lower tips and bonuses than usual. To stand a chance of a loan application being approved at such times, you need to be a very strong borrower.

At the time this was written, mortgage rates were higher than they had been for most of the previous several years. And most homeowners were paying lower rates on their existing mortgage than they could get now.

That made cash-out refinances rare. It made no sense to trade in an entire existing low-rate mortgage for a more expensive one.

Because of this, homeowners increasingly turned to alternatives to cash-out refinancing, such as home equity loans and home equity lines of credit (HELOCs). These allow people to tap only the proportion of their equity that they need, while leaving their existing low-rate mortgage in place.

2. Rising property values

When home prices are high, you have more equity to tap. Equity is the amount by which your home’s value exceeds your mortgage balance.

And now might be a great time to get a home equity loan or home equity line of credit (HELOC). Because a report from Intercontinental Exchange (ICE) reckons that the average homeowner with a mortgage had $212,000 in tapable equity in the second quarter of 2025.

That’s a total of $17.6 trillion in home equity shared between 48 million homeowners. Of course, some of those owners will have little or no equity, while others will have much more than $212,000. How much you have will depend on how far into your mortgage you are and what’s happened to home prices in your neighborhood since you bought.

3. Inflation

Inflation is a double-edged sword when it comes to tapping equity. On the one hand, it can make your loan more affordable. Let’s suppose your fixed-rate home equity loan or HELOC has a monthly payment of $500. If prices and your salary rise 10% in a year, after 12 months, it will feel as if you’re paying only $450 a month. You’ll still be paying $500, but your higher salary means it will eat up a smaller proportion of your income.

But inflation has a downside, too. The investors who provide the funds for lenders hate inflation. With fixed-rate loans, it eats into their fixed incomes. So they demand a higher yield (interest rate) to compensate for that.

If you think inflation is likely to dog the economy while your home equity loan or HELOC is current, you might want to choose a fixed-rate product. These tend to become less widely available when investors fear that a spike in inflation is imminent.

4. Personal financial readiness

You’ll be in line for lower interest rates and better loan terms the stronger you are as a borrower. Lenders will usually favor you if you:

• Have a high credit score.
• Have a small burden of existing debts.
• Leave a chunk of equity in your home. In other words, don’t tap the maximum amount that the rules allow.
• Have a secure source of income. That may be a good job with prospects or other solid sources, such as investments, pensions or benefits.
• Have a worthwhile rainy-day fund in place.

Lenders are unlikely to take into account the reason why you’re borrowing the money. However, you owe it to yourself to think through how this loan will affect your longer-term financial plans and your retirement strategy.

Mistakes to avoid when taking equity out of your home

You’re in charge of deciding when, how, and why you borrow but when it comes to finding the best time to take equity out of your home, financial advisors caution against common timing mistakes that many borrowers later regret.

1. Tapping equity to fund depreciating purchases

A home equity loan or HELOC can easily last one, two or even three decades. So, you probably don’t want to use one of those to fund:

• A car or truck purchase. You don’t want to be still paying off a vehicle in 29 years when it hit the junkyard 15 years earlier. There may be exceptions for rare vehicles that can be investments.
• A wedding. Again, somewhere between one-in-three and one-in-four marriages end in divorce, with couples breaking up on average eight years after their wedding. You might still be paying for the celebrations two, 12, or 22 years after the happy couple split.
• The vacation of a lifetime. Memories fade. Monthly payments last.

Of course, all these purchases are great. They can greatly enhance your life. But they’re better if you save up for them or use shorter-term auto loans or personal loans to pay for them.

2. Using equity when interest rates are high and credit is poor

This is all about choosing the best time to take equity out of your home. Whether you’re paying a high rate as a result of market conditions or because your credit is shaky, you may find your expensive borrowing a real financial burden.

Of course, if rates tumble or your score improves, you can refinance to a lower rate. However, don’t forget the closing costs that you may pay when you do that.

Even if you get a no-closing-cost offer, you’ll pay with a slightly higher rate. Lenders aren’t in the business of free lunches.

3. Cashing out equity without a repayment plan or ROI

Financial advisors will tell you that the smartest uses for home equity involve a return on investment (ROI). Most commonly, that comes in the form of home improvements.

However, you might choose other forms of investment. For example, you might wish to improve your earning capacity by gaining a higher qualification. Or you may need seed capital to get your new venture off the ground.

Whatever the reason for your borrowing, be reasonably sure that you will be able to comfortably afford the repayments. The 21st century has provided plenty of reminders of the uncertainty of economic prosperity: from the credit crunch, through the Great Recession, to the COVID-19 pandemic and oil-price shocks caused by wars.

Most of us survived those intact. But some did so only with real financial pain.

The bottom line when picking the best time to take equity out of your home

We laid out at the start the things that make a moment the best time to take equity out of your home. Ideally, you want interest rates to be low, home values to be high, and your personal creditworthiness and income security to be great.

Of course, life is rarely ideal. And, sometimes, you may need to borrow when those circumstances are less than perfect.

However, it’s wise to tap your equity when you have a worthwhile purpose, usually an investment of some sort. Still, getting yourself out of a hole can be a worthwhile purpose, too.