Here's how much home equity the average owner has — and how they can use it
Inflation is ticking back up, the interest rates to battle it are still high and many homeowners are sitting tight. With interest rates the highest they've been in 22 years, many homeowners have elected to stay where they are and instead look inward by focusing on their existing homes. With a major home repair or renovation, they can potentially improve their surrounding and raise the price of a resale in the future.
They can do this via multiple credit options, including home equity loans and home equity lines of credit (HELOCs). With either, the owner will deduct a portion of the equity they've accumulated in their house to use as a new payment source, often at a lower interest rate than some alternatives.
Before you start planning a new renovation, however, it first helps to know how much home equity the average homeowner even has to work with. Are you considering a home equity loan? Start by exploring your rates and terms here now.
How much home equity does the average owner have?
According to a report released earlier this month by Black Knight, "the average mortgage holder has some $199K in tappable equity available to them; down somewhat from 2022's historic highs but still a historically large amount regardless."
While that's just an average generated by one report, it does give homeowners a good idea of how much they can potentially deduct from their existing equity. Since most borrowers will limit the amount owners can borrow at 80%, that means the average homeowner can withdraw about $159,000. Obviously, the more equity you have, the more money you can deduct, so make sure to accurately calculate your home equity before applying for a loan or HELOC.
"Overall mortgage-holder equity is now back above $16T, with some $10.5T of that being 'tappable,' or available for the homeowner to borrow against while still maintaining a relatively conservative 20% equity stake," the Black Knight report noted.
Explore your home equity loan options here now to learn more.
How to use your home equity now
There are multiple ways owners can tap into their home equity now, ranging from cash-out refinancing to reverse mortgages for seniors. Two of the most popular (and easy to use) options are home equity loans and HELOCs.
A home equity loan works as a lump sum of money you deduct from your existing equity. Interest rates on home equity loans are fixed, although you'll pay interest on the full amount you withdraw, so make sure to apply for an accurate figure. Otherwise, you could get stuck with the interest on a loan you didn't fully use.
For qualified borrowers, home equity loans have lower interest rates than credit cards and personal loans. And that interest can be deducted from the owner's taxes if they use the loan for IRS-approved home repairs and renovations.
A HELOC, meanwhile, works similarly to a home equity loan, with two important differences. Unlike home equity loans, the interest rate on a HELOC is variable. So while you may pay a lower rate to start, it can (and very likely will) increase in the future. That said, the interest you pay on a HELOC will only be for the amount you used, not the amount you were approved to use. So if you wind up needing less than you initially thought, you'll only be responsible for the interest on the amount you ultimately deducted.
Compare home equity loans and HELOCs here now to determine which is best for you.
The bottom line
With about $200,000 of home equity to use, the average homeowner still has some appealing options, even with the elevated interest rate climate. They can use their home equity to pay off debts, finance major expenses or even renovate and improve their current home (and get a possible tax deduction, too). This can be done in a variety of ways, with home equity loans and HELOCs being two of the more cost-effective and easy-to-use options.
