Since the turn of the decade, a dramatic increase in home prices has resulted in significant wealth accumulation for the middle class.
According to recent research, between 2010 and 2020, total housing wealth increased by $8.2 trillion. This increase was largely due to the coronavirus pandemic, which has led to a housing boom.
Though selling one’s home can be difficult in such a hot market, there are a few ways to access this equity.
You can’t spend your equity, but if you can monetize some of it to reduce debt and make life easier from a cash flow perspective, that makes a lot of sense in most situations
Here are some suggestions to use your home equity to your benefit!
1. Cash Out Refinance
There are a few different ways to get money from your home’s increase in value. One option is to refinance, which would give you cash that you could use for other purposes, such as savings or another goal. Another option is a cash-out refinance, where you borrow more money than you currently owe on your home and receive the difference in cash. This can be a good option if you’re able to refinance at a lower rate or reduce your monthly payments.
Homeowners may not find it the best option currently because interest rates are rapidly rising; making it less likely that someone would be able to refinance now for a more attractive rate.
It can also be expensive to refinance, as there are additional costs involved.
2. Home Equity Loan
A home equity loan can help you get money from your house. You borrow money and pay it back over time. The loan has closing costs and sometimes also fees. You have to borrow a lump sum at once. The interest rate is fixed, which can help you plan for the future.
2. Home Equity Line of Credit (HELOC)
A HELOC can be a great way to access home equity without selling your home. It’s like having a loan with a variable amount, which you can access when you need it. If you have a HELOC, you can draw on the amount of your line of credit as needed, but you don’t have to take the whole amount out at once.
Currently, interest rates are relatively low on HELOCs. People with good or excellent credit — generally a FICO score of 670 or more — can likely get a lower interest rate on a HELOC than they would on other forms of debt. This makes it a particularly attractive option for those looking to borrow money.
3. Additional Ways to Use Home Equity
You can also use your home equity to pay down other debt, which can be a smart move if you have high-interest-rate credit card debt. According to Bankrate, average rates on credit cards are currently more than 16%.
There may be some benefits to using a home equity line of credit or a cash-out refinance to pay off credit card debt. For example, you could lock in a lower interest rate.
Ready to start leveraging your home equity?
If you’re curious about how to use your home equity to your benefit, I can help. I’d love to connect with you today for a free strategy session. During this call, we’ll discuss your unique situation and real estate goals, so we can map out a plan that makes the most sense for you.
Tap here to schedule a call today!