Yahoo Finance Why Your High Home Equity Might Be Hard to Tap. 6 Ways To Access That Money
The good news for homeowners in 2024 is that home equity is at a record high in the US. The bad news? Due to high interest rates, it’s harder for homeowners to tap it through refinancing because mortgage interest rates are also high.
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What’s a homeowner sitting on all that home equity to do if they want to access some of those funds? Real estate experts explain that all is not lost.
One or more of the following strategies may be the answer to your home equity conundrum:
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Open a HELOC
One of the biggest advantages of homeownership is the ability to build equity over time, according to Joe Martin-Bindley, founder of Peninsular Property. “You can use your equity to secure low-cost funds in the form of a second mortgage, an equity loan or a line of credit via a HELOC,” he said.
If you have equity built up in your home, you may be eligible for a home equity loan or home equity line of credit (HELOC), he explained. The advantages of these are that home equity loans and HELOCs are secured by the value of your home, and lenders are willing to offer lower interest rates than for some other types of loans.
“A home equity loan comes in the form of a lump sum of cash, often with a fixed interest rate,” he said.
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Additionally, because HELOCs are often adjustable, you are likely to have lower rates, according to Yosef Adde, an investor and real estate agent with a background in finance and the founder of I BUY LA.
“This is an ideal product for someone desiring to have access to funds over a period of time, not in one single shot. The benefit of this system is the financial flexibility of having the ability to draw and repay funds many times during the draw period.”
Potentially, you could refinance your house when interest rates decline and use those funds to pay off the HELOC.
Consider a Reverse Mortgage
Adde said that a reverse mortgage is another option for homeowners aged 62 years or older.
This loan can enable you to derive some cash out of your home equity without disposing of the residence.
“Payments would be expected only after the homeowner sells the house, moves out, or unfortunately passes away, so it is suitable for someone who wants to supplement retirement income,” Adde said.
You do want to be clear on the fees and implications for heirs before giving it a go, however.
Sell Your Home
The most direct way to tap into home equity is by selling your home, Adde explained.
“You pay off any mortgage on the home, and you’re free to use the rest of the money. To downsize to a smaller, less expensive residence can be a great relief on cash flow.”
This is particularly important in cutting the level of living expenditure in general or shifting to cheaper locations, he explained.
Rent Out Part of Your Home
If tapping your equity isn’t ideal just yet, Adde recommended renting out part of your home as another way to raise money.
“Here, you get to tap into your home’s value without the need to sell your home or take up new debt. It works best for homeowners who have extra space in their home lying idle or who are willing to share.”
Seek A Personal Loan or Lines of Credit
While not directly tied to your home equity, personal loans or lines of credit can be an alternative for accessing funds without tapping into home equity, according to Mike Wall, owner of EXP Realty/ EZ Sell Homebuyers, and a real estate investor with over 23 years of experience.
“These loans are usually unsecured, so interest rates might be higher, but they offer flexibility without risking your home,” he explained.
And like with a HELOC, should the interest rates drop to a palace where refinancing makes sense, you could then tap your equity to pay off this kind of loan.
Short-Term Bridge Loans
Another approach is a bridge loan, a short-term loans that can provide immediate cash flow by leveraging your home equity, Wall said. They are designed to bridge the gap between buying a new home and selling your current one, or for other financial need, Wall said.
Martin-Bindley said, “This is attractive to people looking to buy a second or investment property quickly where cash funds are needed if the property isn’t mortgageable, which could be for a number of cases due to issues with the property or the existing ownership.”
He also warned that this type of loan is often more expensive; however, you may be able to access it quicker as it works in a similar way, where a charge is placed against your existing home.
No matter what approach you take to your home equity, “Consulting with a financial advisor or mortgage professional can help you make an informed decision,” Wall said.
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