Blog posted On October 24, 2024
Recently, growing numbers of homeowners have been taking advantage of their home equity. Due to home values soaring, many are starting to understand the importance of dipping into the equity they’ve built up over the years.
First, what exactly IS home equity?
Home equity is basically the difference between your home’s value and the amount you still owe on your mortgage, representing the paid-off portion of your home. It naturally increases overtime as you make your mortgage payments and home renovations, meaning that an older mortgage has more home equity built-up than a newer home loan.
How can you use your home equity?
There are two major ways to unlock your home equity and use it to your advantage. Either through a cash-out refinance or a home equity line of credit (HELOC). Simply put, a cash-out refinance replaces your current mortgage with a new one (including a new mortgage rate), and gives you a lump sum of cash in the process. A HELOC is a second mortgage that allows you to keep your current mortgage rate and tap into your equity whenever you need, kind of like a revolving line of credit. After tapping into their home equity, homeowners often use the cash for renovations, separate home investments, or to pay off high-interest debt like student loans. If you’re interested in pursuing a home equity loan, our loan professionals are here to help!
Why are many homeowners tapping into their home equity now?
Rising home values have a direct correlation to home equity. As home prices have risen, home equity has ballooned to record highs. According to the St. Louis Federal Reserve, homeowners can now take advantage of more than “$32 trillion in home equity as of the first quarter of 2024.” This is one of the few positives of a high-interest rate economy since rising home prices have pushed tappable equity to one of its highest levels ever. With interest rates finally dropping for the first time in 2.5 years, cash-out refinances may start to become viable again. However, rates would likely have to drop below 6% to entice homeowners back to cash-out refinances.
Homeowners would rather take on a second mortgage rather than refinance, given that they wouldn’t want to give up their relatively low rate on their primary mortgage. According to MarketWatch, almost “nine in 10 homeowners with a mortgage have a rate below 6%,” which places their rates far lower than the current 6.67% rate.
What should homeowners make of all this?
You should consult your financial advisors, first and foremost. Despite the surge in home equity-tapping opportunities, homeowners shouldn’t jump right into a home equity loan or a HELOC. Evaluate your financial goals and the amount of savings you have tucked away. If you need help weighing these factors and want to fully understand how to access your home equity, our loan officers are excellent financial guides, ready to help you consider your options. We want to help you make the smartest financial move that makes sense for your lifestyle and unique needs.
Source: MarketWatch, CBS News, CNBC
