The owners just earned $ 2.9 trillion in equity. Here’s what you can do with yours

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Home values ​​have skyrocketed nationally as low mortgage rates fueled increased demand from buyers. The result? Homeowners are sitting on a lot more equity these days.

In fact, mortgage owners collectively earned $ 2.9 trillion in equity during the second quarter of 2021, CoreLogic reports. This is an average gain of $ 51,500 per borrower since the second quarter of 2020. It also means that you can now have more options to use that equity to your advantage.

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What is home equity anyway?

Home equity refers to the part of your home that you own. An easy way to calculate your home equity amount is to take the market value of your property and subtract your mortgage balance. For example, if your house is worth $ 400,000 but you owe $ 250,000 on your mortgage, you have $ 150,000 in equity.

How To Profit From Home Equity

When you sell a home that you have a lot of equity in, you get a higher salary after you cover your mortgage balance and pay your real estate agent fees. But even if you don’t sell your home, you can still use your equity as a source of cash by borrowing against it with these options.

Home equity loans

With a home equity loan, you borrow a lump sum that you pay back in equal installments over time. You can take out a home equity loan for any reason – it doesn’t have to be to improve your home. That said, it’s common for home owners to take out home equity loans to cover things like repairs and renovations. Our guide to the pros and cons of a home equity loan can help you determine if it is right for you.

HELOCs

With a Home Equity Line of Credit (HELOC), you have access to a sum of money that you can withdraw for a period of usually five to ten years. The amount you have to pay back will depend on how much you actually borrow.

When it comes to HELOCs versus home equity loans, HELOCs are more flexible. They allow you to borrow money as needed rather than committing to a lump sum up front. But HELOCs tend to have variable interest rates, while home equity loans generally have fixed rates. This means that HELOC payments can change over time.

HELOCs also allow you to borrow money for any reason. You can purchase a HELOC and use the product to start a business or go on vacation (although the latter isn’t really recommended, as it’s usually not a good idea to go into debt just for traveling).

Cash-out refinancing

With withdrawal refinancing, you are borrowing more than your remaining mortgage balance. You could, for example, refinance a $ 250,000 mortgage into a $ 300,000 loan if you have enough equity in your home. From there, you will receive a check for $ 50,000 after paying $ 250,000 to your refinance lender. You would then have the flexibility to use that $ 50,000 as you wish.

Since refinance rates today are very competitive, cash refinancing can be a very affordable way to borrow against the equity in your home. And like home equity loans, your monthly payments will be fixed and predictable.

Should You Put Your Home Equity to Work?

When you borrow against the equity in your home, you incur debt. And if you don’t pay off that debt, you could risk losing your home. For this reason, it is important to proceed with caution when leveraging the equity in your home.

Having said that, if you need to borrow money, all of the above options can be much more profitable than alternatives like a personal loan. Today, many homeowners have more equity than they’ve seen in their lifetime. As long as you are borrowing responsibly, there is nothing wrong with taking advantage of this situation.


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