You can benefit from having a lot of equity in your home.
- Home values soared over the year, leading to higher levels of equity.
- The average mortgage borrower had $178,000 of equity in the third quarter of this year.
The past year has been frustrating to say the least for potential buyers. While mortgage rates have remained low, home values have soared nationwide, making once affordable properties out of reach.
But while high home values may hurt buyers, they’re a good thing for existing homeowners. In fact, Black Knight reports that in the third quarter of 2021, home equity among US homeowners hit a record $9.4 trillion. This represents an average of $178,000 per borrower. It also marks a 32% increase over the previous year.
If you’re sitting on a lot of equity in your home, there are several ways to borrow against it. Here are three of note.
1. A home equity loan
With a home equity loan, you borrow a lump sum of money that you pay back in equal installments over time. Home equity loans usually come with fixed interest rates, which makes your monthly payments predictable.
You are not limited to home-related expenses when you take out a home equity loan. Although many borrowers use these loans to fund home improvements or repairs, you can use the money for any purpose.
Often, you’ll get a lower interest rate on a home equity loan than on another type of financing, such as a personal loan. But be careful, because falling behind on home loan payments could put you at risk of losing your home.
2. A HELOC
A HELOC, or home equity line of credit, gives you access to a sum of money that you can draw on for a set period of time, usually five to ten years. HELOCs can be more flexible than home equity loans because you can request a higher sum and only borrow the amount you actually need. Any part of your HELOC you don’t touch is money you won’t owe or earn interest on.
But HELOC interest tends to be variable, so once you start paying off that HELOC, you may struggle with the amount you owe each month changing over time. Like home equity loans, HELOCs allow you to borrow money for any purpose. And it’s just as important to keep track of HELOC payments because your home is used as collateral for the money you borrow.
3. Cash refinance
With a cash refinance, you borrow more than your loan balance and can use the extra money for any purpose. Then you simply repay the full amount you borrow as you would with a regular mortgage.
Since refinance rates are so low right now, a cash refinance can be a very affordable borrowing option. But the higher your mortgage, the harder it can be to meet your monthly payments, so be careful when taking money out of your home.
Higher levels of net worth could open the door to more borrowing options for homeowners. Equally important, those struggling to meet their housing costs may now have the option of selling their properties more easily, moving on mortgage-free, and downsizing or relocating. If you’re sitting on high equity in your home, it pays to explore ways it could help you achieve your goals or improve your financial situation.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.