Home Equity and How to Capitalize on Your Investment
You know what’s higher than interest rates right now? Your home equity!
The last decade has seen a sharp increase in home values across Middle Tennessee. In just the past three years alone, the average home price in Middle TN increased $165,807 or 44%!
High home values are contributing to high levels of home equity. What is home equity? FreddieMac defines home equity as “the difference between how much your home is worth and how much you owe on your mortgage.” According to Keeping Matters Current, 68.7% of Americans have a tremendous amount of equity in their homes, from 50%-100% of their home’s value!
As a homeowner, it’s amazing to have a profitable return on your investment. But what are your options to maximize this equity?
1. Hang Tight. If you have no plans to move, no other large debt and no need for repairs or improvements to your home, then sit back and bask in the knowledge that you are living in a great nest egg!
2. Explore a HELOC. A Home Equity Line of Credit (HELOC) could be an option for you. This is when you borrow money against the amount between your home value and mortgage payoff (i.e. your home equity) For example, if your home is valued at $500,000 and your mortgage payoff is $100,000, you may be able to borrow a portion of that $400,000 equity.
HELOCs can be used to pay off debt with higher interest rates (i.e. credit cards), make deferred maintenance repairs on your home, or make updates/improvements to your home. Also, you don’t need to keep a balance in the HELOC. You may use it for a one-time project, pay it back and then it will be available for your next project or financial need. There are costs to obtaining a HELOC; you will have to pay for an appraisal and closing costs. You will also need to pay back any amount you borrow from the HELOC, so your overall monthly budget will increase with this added payment.
3. Sell and Buy. If you bought in the last 5 years, your mortgage interest rate is probably below 4% - which is a significant difference from the 7% rate in the current market. When you sell your current home, the large amount of equity realized can then be used for a significantly higher down payment on your next home which will reduce your overall monthly mortgage payment. When interest rates drop (and historically, they do!), you can re-finance the interest to further reduce your monthly payment.
Wondering if selling might be the right thing for you to do right now? Check out our recent blog to determine when it’s time to sell or give us a call to chat about it.