Low Mortgage Rates + High Home Values: Should You Tap Into Your Home Equity Right Now?

Low Mortgage Rates + High Home Values: Should You Tap Into Your Home Equity Right Now?

If you own a home, there’s a good chance you’re sitting on a nice chunk of equity. According to this report from Black Knight, the average homeowner got a $48,000 bump in their home value, raising the average equity to $185,000 in 2021.

Considering mortgage rates are still historically low, and home values are high, it can be tempting to tap into your home like it’s an ATM. With hints of rates going up, and values potentially coming down, it can be even more tempting to rush and pull equity out of your house.

Before you do, consider whether or not you should. Take a look at some reasons to tap into your equity, and some reasons not to pull money out of your house:

Good Reasons

  • Home improvements
  • College costs (if the rate is lower than student loan rates you can obtain)
  • Debt consolidation (if you manage credit well and can use it to lower your payments)
  • Emergency expenses
  • Wedding expenses
  • Business expenses

Not So Good Reasons

  • Vacations
  • Buy a car
  • Risky investments (like “hot” stock tips you read online)
  • Pay off credit cards (if it is a recurring problem)

If you determine it makes sense to turn your equity into cash, you have a few options:

Cash-out Refinance

This type of loan allows you to refinance your home for a higher amount than you currently owe, and take the difference in cash. For instance, you owe $100,000, take out a $150,000 loan, and get $50,000 cash. This can be a great option if your current mortgage is at a rate that is higher than current rates, or you have paid down your original loan substantially over time.

Home Equity Loan

These are a second mortgage on your home, usually at a higher rate than the first. Lenders may also be a bit more careful about how much they will lend, since these take second position to your original mortgage if the home is foreclosed on.

Home Equity Line of Credit

These are commonly referred to as a “HELOC.” They’re also a second mortgage, but in the form of a revolving line of credit, much like a credit card. The rate is often variable and fluctuates with changes in the market, but you can find some that are fixed-rate.

The Takeaway:

The current market conditions are favorable for tapping into your home equity if you have a good amount of it. If you decide to do so, just make sure it’s for a good reason. Try not to take out too much equity. Maintaining 20% equity is an ideal benchmark — taking into consideration that values could also drop a bit in the near future — so be safe when estimating how much you’re taking out.

No matter what your reason, only do so if you know you can handle the payments and it won’t put your hard-earned equity and home at risk. And, as always, make sure to seek the advice of your financial advisor, estate planner, and / or real estate agent before turning the equity in your home into cash.

Recently Married? Here Are the Mortgage Tips You Need to Know

You’re recently married. Congratulations! If you’re like many newlyweds, the next thing on your agenda is probably buying a house—and, in order to do that, you may need a mortgage.

But, as a newly-married couple, what do you need to know about successfully getting a mortgage?

recent article from realtor.com outlined key mortgage tips and insights newlyweds should keep in mind as they search for their dream home, including:

  • Review your finances. Before you jump into the home search process, it’s important to understand where both you and your partner stand financially. Sit down and discuss your credit scores and outstanding debt, as both will play a major role in your ability to secure a mortgage.
  • You don’t necessarily have to put both names on the mortgage. If you have excellent credit and little debt, but your partner is in a less ideal financial position (or vice versa), you might want to consider only having one half of your partnership apply for a mortgage; that way, one person’s credit score or debt won’t negatively impact your loan terms (for example, higher interest rates). And don’t worry; as long as both names are on the title, you both own the house—regardless of whether both spouses are on the mortgage.
  • If an interest rate seems too good to be true, it probably is. As newlyweds, you and your partner want to get the most competitive interest rate possible for your mortgage. But if a mortgage rate seems too low to be true, it probably is. For example, there are lenders out there that will offer a super-low interest rate—but also super harsh penalties for late payments, which could put you in a financial bind if you’re ever late with your mortgage payment. If you get offered a loan with a so-low-it’s-hard-to-believe interest rate, it could be a red flag—so make sure you fully understand the terms and conditions before moving forward.

Selling Your Home? Here’s What Not to Display in Your Home Office

With more people working from home than ever, the home office has become a major selling point to many potential buyers—and if you want to attract those potential buyers, you need to frame your office in a way that’s going to appeal to them.

And that includes getting rid of things that won’t appeal to them.

recent article from Apartment Therapy outlined the items real estate agents recommend not displaying in your home office if you’re preparing to sell, including:

  • College degrees and other references to your alma mater. You may have nothing but happy memories about your university—but potential buyers might not feel the same way. For example, a potential buyer might have applied to your alma mater, only to be rejected—and seeing a diploma or a banner with the University logo in your home office could bring up those not-so-fond memories and take focus away from the property. Before you list your home, make sure to remove your diplomas and any other references to your alma mater from your home office.
  • Disorganized cords, papers, or clutter. You may feel comfortable working in a slightly disorganized space—but potential buyers may not feel the same way. Make sure to bundle the cords for your computer, monitor, and other electronics and clear your desk of any loose paper or clutter before you show your home.
  • Company swag. You might be tempted to keep your company swag (like a coffee mug or monitor sticker in your office)—but it’s best to keep where you work private. While it’s unlikely, if a deal goes south—and a potential buyer knows where you work—they could place a call into your company and say something disparaging to your employer.

The Takeaway:

Bottom line? When you’re selling your home, you want potential buyers to be able to picture themselves working comfortably from your home office—and that means removing personal effects and making sure things look organized.

Insights Into The 2021 Housing Market

2021 is officially upon us. But how, exactly, is the new year shaping up through the lens of real estate?

HomeLight’s Top Agent Insights Q4 2020 Report surveyed over 1,000 real estate agents for their insights into the 2021 housing market, including:

  • Lack of inventory will continue to pose challenges in 2021. A lack of homes for sale presented one of the biggest challenges for buyers in 2020—and at 20.5 percent, a continued lack of inventory is the factor most agents cited as their pick for the biggest influence on the 2021 housing market.
  • Remote work will continue to influence the real estate market. Low inventory will have a big impact on the market—but so will remote work. 14.5 percent of agents surveyed said the shift to remote work will have the biggest influence on the housing market in the upcoming year.
  • Low mortgage rates will continue to drive demand. A whopping 94 percent of agents surveyed said that low interest rates were boosting buyer demand in Q4 2020—and with most experts expecting mortgage rates to stay low through the end of the year (according to the report, Fannie Mae is expecting interest rates to stay around 2.8 percent while the Mortgage Bankers Association is forecasting a slight increase in rates to 3.3 percent), that demand should continue through 2021.

The Takeaway:

So, what does this mean for you? Real estate agents have their finger on the pulse of what’s happening in the market—so understanding their insights and predictions can help you better prepare to navigate the market in 2021, whether you’re planning to buy or sell.