Aug 16 2022

Five ways to leverage boosted home equity

From making home improvements to accessing cash, follow this guide for unlocking your increased value.

Have you been looking for a tool that can help you reach your financial goals as a homeowner? The good news is that you’re living in it. For most homeowners, it’s likely that your home equity—the value of your investment in your home—has increased considerably within the last year.

“The average homeowner gained approximately $64,000 in equity during the past year,” CoreLogic’s latest Equity Insights Report shows. Here's a breakdown by state:

 

In other words, you’ve probably had a recent boost in your prosperity. This is seen in large home equity gains. Home values have risen due to low inventory and high homebuyer demand. As a homeowner, you directly benefit. Increasing prices add to your home’s value, and to your investment.

What can you do with your equity? 5 potential solutions

Many homeowners are wondering how to use their recent equity gains. If that sounds like you, learn more about these five options:

1. Trade up or down to a home that better meets your needs.

Like many people during the pandemic, you too may have realized that you’ve outgrown your house. You might be seeking more space for remote work, virtual schooling, a home gym, and/or outdoor play. Or you might’ve discovered after spending more time at home that your house is too spacious. Now, you’d like to cut down on your monthly overhead and downsize.

Whatever your circumstance may be, you could make this move happen using your equity. When moving into a larger or smaller house, your recent equity gains may potentially pay for some or all of your down payment.

2. Become a landlord.

Some homeowners are cashing out their equity to pay for a new home’s down payment—on a second house. Buying a second home that can be used for vacation or a rental offers another source of equity gains. But there is a potential drawback to consider for the millions of homeowners who recently refinanced to a rock-bottom rate. Using a cash-out refinance for a down payment might increase a mortgage’s interest rate.

Second home demand has declined for this reason—related to higher interest rates, as well as higher upfront fees for second properties. For homeowners interested in building their real estate portfolio, it’s smart to chat with a Loan Officer. They can assess current equity levels and count the cost of purchasing a second house.

3. Move to your dream location.

Maybe it’s not your house—it’s your surroundings. Another byproduct of the pandemic is the relocation boom. Thanks to now-permanent remote work policies at many companies, more than one-third of homebuyers are looking to relocate, a number that’s reached its all-time high.

Relocating may be an attractive choice if you’d like to live closer to family, the beach, the mountains, or a city you’ve always loved vacationing in. Your home equity can help power this move too.

Contact us to find out if one of these options is right for you.

4. Pay for education.

For some homeowners, moving isn’t in the cards right now, but they’d still like to make use of their equity. If so, a homeowner might leverage their equity—either by cashing out or using a traditional refinance to free up funds by lowering a monthly payment—and put it toward big-picture goals. This may include paying for higher education, planning a wedding or vacation, or even starting a business.

5. Make repairs or upgrades.

Interest in home improvement projects also surged throughout the pandemic. For homeowners who don’t intend on selling, it makes perfect sense. They can upgrade and enjoy the home they’re living in, while also helping to increase its market value if they plan to sell in the future. Cashing out on equity, renovating, and reinvesting in a home is essentially doubling down on this investment.

For homeowners who don’t plan to cash out, there may still be several strong reasons to reassess a mortgage. These include:

  • Changing loan terms—i.e., converting from an adjustable to a fixed rate.
  • Lowering a monthly payment by lowering an interest rate.
  • Removing the added cost of private mortgage insurance (PMI), for those who are eligible.
  • Qualifying for better loan terms if a credit score has improved.
  • Shortening a loan term, helping to pay off a mortgage sooner.

Of course, it’s still important to weigh the cost and calculate when a refinance will break even. During a refinance, a homeowner is still responsible for paying closing costs. These can range from 2 to 5 percent of a loan’s total. To figure out the breakeven point (the point at which a homeowner will start saving), simply divide the closing costs by the estimated monthly savings.

Let’s explore what’s possible

It isn’t about buying the biggest house you can afford or cashing out on all the equity you’ve gained. These are common misconceptions. It’s about connecting with a local Loan Officer who can assess your needs and help you fine-tune your mortgage so it fulfills your plan for your life. If you have questions about your equity, reach out to explore your options.

This is for informational and educational purposes only and not intended as an advertisement as defined by Regulation Z. Please consult a trusted professional as personal circumstances may vary. No specific results are guaranteed. MAC623-1481907.