Is your home price still high? Do this now
News this week that the Federal Reserve is raising interest rates again may have not been a surprise but it was still bad news for scores of homeowners and those looking to buy a home soon. A spike in rates - the tenth since March 2022 - will again likely push up mortgage interest rates. It will also push refinancing for millions of homeowners further out of reach.
The long-term effect on the real estate market overall, however, is uncertain. Previous interest rate hikes have led to a mixed bag of results. Some home prices have dropped over the last year while home values in other parts of the country have stayed steady or even increased. If you're a homeowner in that last category then you may want to consider using your home equity now before the interest rate environment potentially changes your home's overall value.
You can explore your home equity loan options here now to learn more.
Why you should use your home equity before prices drop
No one knows for certain where the housing market will be by the end of the year. U.S. home sales fell in March, proving a tepid start to the spring homebuying season. And the national median home price slipped 0.9% from the previous March, landing at $375,000, the National Association of Realtors said.
That doesn't mean, however, that homeowners aren't still sitting on significant sums of home equity. They are. Home prices rose in 40 major cities earlier this year. But there's no proof that they will stay high for long, particularly in today's rate environment. That's why it makes sense to tap into the home equity that you've accumulated now before prices fall and the amount you can withdraw is substantially smaller.
Home equity, after all, isn't just determined by how much you've paid toward your mortgage balance. It also includes the current value of your home on the market. For example, let's say you initially had a mortgage of $500,000. You've since paid off $100,000 of the principle but your home's value has increased to $600,000. In this example, you'd have $200,000 worth of equity to play with ($100,000 of payments + $100,000 in home appreciation).
That said, as rates increase home prices may falter, leaving you left to withdraw than you could have got just a few months ago. So if you need extra money to finance repairs, major expenses or anything else, you should strongly consider using your home equity now while it's still high.
Explore home equity options here now.
How to use your home equity now
There are multiple ways to use your home equity while your home value is still high. Here are two to know:
Home equity loans: Home equity loans will allow you to withdraw a lump sum of cash from the equity you've accumulated in your home. Interest rates on home equity loans are typically lower than what can be found with personal loans or credit cards. And the rates are fixed, allowing the homeowner to accurately budget each month. Learn more about home equity loans.
HELOCs: HELOCs, or home equity lines of credit, also allow the homeowner to withdraw from the equity in their home, albeit via a revolving line of credit. HELOCs work more like credit cards than home equity loans do. They also have lower interest rates than some other credit options, but the rates on HELOCs are usually adjustable so if you want to get a low rate - and keep it low - a home equity loan may be better for you. Learn more about HELOCs.
The bottom line
No one knows for sure where interest rates are heading. While home prices have stayed consistent or have even jumped in some parts of the country, the rate environment may not allow that to continue. In this case, homeowners who need extra money may want to act now so that they can get more with a home equity loan or HELOC. If they wait, and home values drop, they will have fewer financial alternatives to pursue.
