[vc_row][vc_column][vc_column_text]The level of equity homeowners have is at an all-time high. Those with a mortgage are seeing their equity climb sharply too. Every time real estate values increase; homeowners get a dollar-for-dollar gain in their home equity. According to the U.S. Census, over 38% of owner-occupied homes are owned free and clear, meaning they don’t have a mortgage.
This rise in home equity has provided the opportunity to use that equity in one of two ways:
- Refinance to cash out some of the equity or lower their current payment
- Move to a better suited home
Refinance
Some homeowners choose to refinance so they can lower their payments while others transform a portion of the equity to cash. There are also many homeowners who could take advantage of lower rates and higher equity, but they haven’t yet.
According to an Economic & Housing Research Note from earlier this month, there were over five million homeowners with a loan funded by Freddie Mac who would benefit by refinancing their loan.
With mortgage rates currently hovering around 3%, many of these homeowners would benefit from refinancing. For example, if a homeowner has a $200,000 fixed-rate mortgage with a 6% interest rate and refinances that loan to a 3% interest rate, their monthly mortgage payment would go from $1,199 per month to $843 per month.
They also have the option of keeping their mortgage payment the same and cashing out a significant amount of their equity.
Move into your forever home
Those who have a high mortgage rate could use their equity as a down payment and maybe even buy their next home without significantly raising their mortgage payment. For example, suppose a person bought a house for $216,000 at the height of the market in 2006. If they put 10% down and took out a mortgage of $194,400 at 6.41% the monthly mortgage payment would have been $1,217.
According to the National Association of Realtors (NAR), a typical single-family home has grown in value by approximately $150,000 over the last fifteen years. That means the $216,000 house would be worth about $366,000 today. After deducting selling expenses, they would be left with about $130,000.
A seller could take that equity and use it as a down payment on a new house!
Whether you’re refinancing your house or moving to a new home, let’s connect to determine the potential equity in your home. You may be surprised by what you hear!
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