For Americans that have owned a home since before 2020, and especially for those who have held onto properties purchased prior to 2008, equity levels have reached an incredible rate. Black Knight reports that the average homeowner could access as much as $178,000 in home equity at the end of the third quarter in 2021, amounting to $9.4 trillion. Since then, home prices have risen and pulled equity positions up too.
Borrowing rates for many of those are at or below 3% as confirming mortgage products. Even non-qualifying mortgages are near their all-time lows. When the interest paid to borrow money is so low, it’s increasingly tempting to pull out the equity and put it elsewhere – an investment, pay down debt, a renovation, or a new business plan, for example.
The Federal Reserve is slowly getting out of the business of mortgage-backed bonds and rates are beginning to rise. Borrowers who want to access equity are running out of time to secure a cash-out refinance at the historically low interest rates. If you find yourself in that position, here’s how you can cash out.
Take out a second mortgage or HELOC
Home equity lines of credit (HELOCs) tend to be a popular product for secured borrowing. The terms are typically quite flexible and rates can be nearly as low as the primary mortgage. Taking money out is simple and as long as you’re making minimum payments, there’s no push to pay it off fully. A second mortgage provides similar options with a structured payment schedule, securing the amount borrowed with the property’s value.
One downside for both a HELOC and a second mortgage is the second payment you’ll have to plan for, not to mention that it’s at an interest rate that will cost more than your mortgage, albeit not much higher.
Get approved for a cash-out refinance
A cash-out refinance can be a brilliant solution to accessing home equity. Essentially, it involves applying for a mortgage on your existing home to take out equity as cash to do with as you want. A cash-out refi is a fantastic solution when you’ve owned the home long enough to see its property value increase substantially. If you’ve owned your home for ten, five, or even two years, you’re likely to have seen as much as 35% in value increases, likely more.
A refinance lets you access the cash more flexibly. There’s only one loan to deal with and the rate you’ll receive is lower than a HELOC or a second mortgage, saving even more money in the long run. In most cases, you’ll need to maintain at least 20% equity in your home but there’s probably still a substantial amount you can access.
Relocate or downsize
If you’ve been thinking of a move anyway, you may be able to access your equity by collecting a portion of your property sale proceeds. When you sell your home, rather than transferring the full equity to your new mortgage, take out a portion as cash. Like a refinance, as long as you maintain at least the minimum down payment amount requirement, the funds are yours to do with as you like.
It works the same way if you’re relocating to a home that’s similar in value or higher in value, and it’s especially true if you’re downsizing or moving to a city with lower cost of living.
Cash out with MBANC
Looking to access your home equity? MBANC’s products and services have you in mind. Whether you’re self-employed, a freelancer, a business owner, or you have a jumbo loan, we have mortgages and cash-out refinance loans to suit your needs. Contact a mortgage analyst today to find out how we can help.