A new report by CoreLogic found that the amount of equity homeowners have in their homes is at an all-time high. The data company reported that the national share of homes with negative equity fell to just 3.8 percent, and since the second quarter of 2018, 151,000 homes regained equity. It is estimated that the average homeowner gained approximately $4,900 in home equity in the last year.
So, what does that mean for you?
If you’re a homeowner, there are a few ways you can take advantage of your home’s equity and this positive trend in the market. Borrowing against your home may give you some financial breathing room, but you’ll want to make sure you borrow wisely if you choose this option.
Here are some tips to help you make decisions that fit your situation:
Understand your options: There is more than one way to borrow money from your home. A home equity loan allows you to borrow a lump sum and pay it back over a fixed term at a fixed interest rate, similar to a car loan. On the other hand, a HELOC loan is similar to a credit card in that you are given access to a line of credit to use as you need it. You’ll be given repayment terms and the rate is adjustable based on the market.
Decide if it’s worth it: A lump sum of money may sound tempting as a solution to financial setbacks you may be experiencing. However, it will benefit you to weigh your options and determine if it makes financial sense to do so. For example, if you need cash for projects around the house, it may be a good idea to decide if they are truly necessary. If you’re considering your equity to help pay for tuition costs, you may want to explore interest rates for student loans and compare those. Depending on your unique situation, a cash-out refinance could be less expensive in the long run.
Consider decreasing interest payments: If you’re carrying a large amount of high-interest credit card debt, it might make sense to tap into your home’s equity to repay that debt at the equity loan’s lower rates. Your lender can discuss specific rates to assist you in determining if this could be a solution to getting out of debt.
Put a plan in place: If you’re approved for financing, you’ll want to have a plan in place for repayment to stay on track with your finances. Because home equity loans have a fixed rate, you can easily plan your repayment timeline. With a HELOC loan, interest rates will vary, but you can familiarize yourself with the specific borrowing repayment terms and timelines to put an approximate repayment plan in place.
If you have questions about your home’s equity, or want to find out if a home equity loan is right for you, our team is here to help! Contact us today.