What does this mean for property owners

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Ask a typical buyer in today’s housing market about his or her experience and you will probably get a similar answer – there not enough houses to buy, and those that are the market is too expensive.

Home values ​​skyrocketed during the pandemic on record-low consumer demand mortgage rates… This, in turn, means that existing homeowners have more options to use. In fact, as of the end of 2020, about 46 million homeowners had a total of $ 7.3 million in net worth, according to research firm Black Knight. This is the highest amount ever recorded, and it also gives homeowners a range of options.

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What is equity?

You often hear the term “equity”, but if you are not quite sure what it means, then you are in good company. Equity is the portion of your home that you fully own, and you calculate it by taking the market value of your home and subtracting the amount of money you owe on your own. mortgage

Suppose, based on today’s market, your home could be sold for $ 350,000. If you owe $ 150,000 on your mortgage, you have $ 200,000 in home equity.

How to use equity to your advantage

If you are selling a home, the more capital you have, the larger your payday will be. Let’s go back to our example with $ 200,000 of home equity in a $ 350,000 home. If you sell at this price, you will make a profit of $ 200,000 after the mortgage is paid. In fact, you probably won’t save the entire $ 200,000 due to real estate agent fees and real estate transfer taxes (fees that are charged in some states for selling a home).

But you can also use your own capital, even if you do not plan to sell by borrowing against it. You have several options.

Loans secured by real estate

FROM equity loan, you borrow a lump sum of money and pay it in equal installments. Taking out a home loan can be an affordable way of borrowing, and you can use the money for any purpose, be it renovations, paying off another debt, or even a vacation (although you usually shouldn’t take on extra debt for something like an escape).

Home Equity Credit Lines (HELOC)

FROM HELOC, you get access to a line of credit that you can use as needed. You usually have five to 10 years to withdraw funds and return the amount you borrowed. HELOC payments can be less predictable than home loan payments because HELOC interest rates are usually variable rather than fixed. However, HELOC also gives you a lot of flexibility. For example, if you are renovating and are not sure if it will cost $ 20,000 or $ 30,000, you can get a $ 30,000 HELOC, borrow the exact amount, and avoid paying interest on a higher loan amount.

Refinancing with cash payment

FROM cashing refinancing, you borrow more than your current mortgage balance, and you can use the rest of the money for any purpose. Going back to our example, in which you owe $ 150,000 on a mortgage but have $ 200,000 in home equity, you can easily qualify for a $ 200,000 cash refinance. The first $ 150,000 will go towards paying off your existing mortgage, leaving you with $ 50,000 to spend at your discretion. Like real estate loans, cash refinancing can be an affordable way of borrowing, especially given today. refinancing ratesand your payments are fixed because they are included in your regular monthly mortgage payments.

The fact that net worth has increased gives today’s property owners more financial flexibility. If you need money, think about different ways to get it. Just be careful: any loan you take out against your home is still a debt that needs to be paid off and you don’t want to overdo it. If you do this, you risk losing your home – which is the last thing you want.

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