How to use home equity while prices are still high

After years of upward momentum, home prices across the country are showing mixed signs.

As of March 2023 data RedfinNationwide, home prices fell an average of 3.3 percent from a year ago. Meanwhile, the most recent Black Knight Mortgage Monitor Report shows that prices are rising in 92% of all markets from February to March, and have peaked in 40% of major markets.

If you’re like most American homeowners, your home gained value during the pandemic — meaning you’re now sitting on a large amount of home equity. Real estate research firm Core logic The data shows that U.S. homeowners had an average of $270,000 in home equity at the end of 2022, up $90,000 from pre-pandemic values.

With this type of significant equity in your home, you may be able to use it to help cover expensive expenses. Home improvement projects or Consolidate the debt. Home equity loan options, eg Home equity loans, HELOCsAnd Cash Out Refinanceoften have more favorable interest rates than credit cards and personal loans.

But before you start the borrowing process, it’s important to find the best option for using your home equity based on your financial goals and other factors.

Get started by exploring your home equity options here to learn more..

How to Use Home Equity When Home Prices Are High

Here are four home equity options to strongly consider pursuing right now while prices are still high.

Home equity loan

Oh Home equity loan This is an installment loan Allows you to borrow money. A portion of your home equity (usually 75% to 85%) for virtually any purpose. Typically, these loans come with fixed interest rates and repayment terms ranging from five to 30 years.

You can. Calculate your home equity. Using the difference between the balance you owe on your mortgage loan and the current market value of your home, assume you buy your home for $300,000 and pay $100,000 on your mortgage over time. This puts your mortgage balance at $200,000. At the same time, the value of your home increases from $100,000 to $400,000 fair market value. In this case, your home equity would be $200,000 ($400,000-$200,000).

Now, you can use the same number to find your home equity loan capacity. If your lender allows homeowners to borrow up to 80% loan-to-value (LTV), you may find that you can qualify for up to a $160,000 home equity loan (200,000 x 80%).

However, you should only borrow the amount you need because you will be paying interest on your entire loan. With good credit, you may qualify for a home equity loan. Today the rate is as low as 6% – 8%..

As with other home equity loan options, you must put your home as security for the loan, meaning you could lose your home if you default.

Check out your home equity loan options here.

HELOC

Oh Home Equity Line of Credit (HELOC) Allows you to access your home equity as revolving credit, similar to a credit card. One of the keys Advantages of HELOCs That is, you don’t have to withdraw the entire amount for which you have been approved. You can only borrow as much as you need, when you need it. This can help you keep your overall interest rate low, since you’re only charged interest on the amount you take out of your HELOC.

But the interest you’ll pay shouldn’t be the only thing you consider. “Base your decision about your HELOC term and HELOC amount on cash flow, not interest rate,” says Ben Miller, branch manager of American Mortgage Network. “Where’s your budget? Let’s talk about your comfort zone. Where do you need to be?”

As with a home equity loan, you also have to account for someone. Closing costs You will pay off the HELOC. These can range from 2% to 5% of your loan amount, although some lenders do not charge closing fees. Of course, you’ll want to compare shopping and interest rates between lenders to get the best rate.

Check out your HELOC options here to learn more..

Cash Out Refinance

Oh Cash Out Refinance Involves refinancing your existing mortgage into a larger loan, which also allows you to tap into a portion of your home equity. In the end, you will borrow a large amount of debt but also have cash on hand. While home equity loan can be called. Second mortgagean additional loan with your first mortgage, a cash-out refinance is a single loan.

How it works: Let’s say you own a home worth $800,000 on the market and have $400,000 left on your mortgage balance. Lenders typically allow you to borrow up to 80% loan-to-value, meaning you can only qualify to borrow as much as $320,000 (80% of the $400,000 home equity). With a cash-out refinance, you’ll take out a new loan, use it to pay off your existing mortgage and keep the resulting proceeds for your own use.

While cash can come in handy, it also leaves you with more debt. And if you’re starting a new 30-year loan, you could end up paying more interest over the life of the loan.

Check your refinance options here to learn more..

Reverse mortgage

Many retired and older Americans may consider a Reverse mortgage As a way to use your home equity to help meet living expenses or other goals.

The most common type of reverse mortgage is called a home equity conversion mortgage (HECM) and is only available to homeowners age 62 or older. You must continue to use the home as your primary residence, but you no longer have to make monthly mortgage payments. Instead, you or your heirs will pay the loan when you’re gone.

Your balance will continue to grow as interest and fees are added to your loan balance each month. Plus, you’re still responsible for paying property taxes and homeowners insurance. A reverse mortgage can benefit seniors who are “home rich,” with plenty of home equity but low on cash flow for day-to-day expenses. However, be aware that your balance will increase, and your home equity will decrease over time. Ultimately, you or your heirs will still have to pay off the loan, which most people do by selling the home.

The bottom line

Significantly with house prices More in many parts of the country Today, compared to before the pandemic, you may have enough home equity to access cash needed for emergency expenses, debt consolidation, or a renovation project. Along with home equity loans and HELOCs, you may also qualify for one. Tax deduction If the funds were used “to purchase, build, or substantially improve a qualified homestead,” According to the IRS.

Before applying, look at your personal finances to determine how a new loan payment will fit into your budget. Furthermore, Shop around and compare lenders to see which one offers the lowest rates..