Home Equity Gains & How You Can Use Them
The average homeowner’s equity has grown nationally by $34,300 in the last year!
Home Equity Gains & How You Can Use Them
Thanks to rising home prices, if you’ve been a homeowner for the past few years, you now have significantly more equity in your home. Even though the rise in home prices started to slow down in the latter part of 2022, the latest Homeowner Equity Insights report from CoreLogic, an analytics company, finds the average homeowner’s equity has grown nationally by $34,300 over just the past year. If you’ve been in your home longer than three years, the percentage of your equity has increased even more.
In Utah, over the past 5 years equity has grown by 82.6%. You can see how home equity in your area has increased during this period by clicking on this link to a chart provided by the Federal Housing Finance Agency (FHFA). It shows on average how much home prices have risen by state, and it also shows the growth in equity since 1991. The rising cost of housing is the main reason for the equity growth in your home, plus the portion of your payments that is going toward equity vs. interest.
The Benefits from Increased Home Equity
Equity in your home helps increase your overall net worth and your credit rating. That helps you reach other financial goals. When you sell your current house, the equity you’ve built up is reflected in the amount of the sale. So, if you’ve been waiting to sell and upgrade to a bigger or more conveniently located home, find out how much more equity you have and how it can help with a larger down payment and lower monthly payments.
The equity you’ve gained can make a big difference when you buy a new home. To find out just how much equity you have in your current home and how you can use it to enhance your next purchase, contact a Citywide Mortgage professional.
How to Borrow Against Home Equity
Home equity is also an asset that you can borrow against to meet other financial needs.
Briefly, those 10 ways are to:
- Cancel your private mortgage insurance when your equity reaches 20%
- Buy a home that better fits your needs
- Make home improvements
- Move to the location of your dreams
- Start a new business
- Fund an education
- Pay off high-interest-rate debt, like credit cards
- Survive short-term loss of income
- Start a fund for medical or other emergencies
- Invest in the stock market or other real estate
The interest rate on home equity-based borrowing is typically lower than that on credit cards and personal loans, because the funds are secured by the equity. So the equity in your home can be a cost-effective source of funds. Plus, if the funds are used to improve the home you live in, interest on such borrowing is generally tax deductible.
However, home equity it is not a liquid asset. It cannot be quickly converted into cash. The equity calculation is based on a current market value appraisal of your property. An appraisal is not a guarantee that the property will sell at that price, but an owner can use their appraised home equity as collateral to secure lower-cost funds for their financial needs.
A Home Equity Line of Credit (HELOC) can be a worthwhile investment when you use it to improve the value of your home. However, when you use it to pay for things that are otherwise not affordable with your current income and savings, such as a vacation or a new car, it can become another type of bad debt. One possible exception to this “rule” is in the event of a true financial emergency, as long as you are confident that you’ll be able to make the payments. You don’t want to risk losing our home.
Sources:
Home Equity: What It Is, How It Works, and How You Can Use It (investopedia.com)
Homeowner Equity Insights – Q3 2022 – CoreLogic®
5 Ways Not to Use a Home Equity Line of Credit (HELOC) (investopedia.com)
