Using the Growing Equity in your Home

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Homeowners are sitting on a pot of gold in home equity

by Lee Conliffe, Mill City Mortgage Lending Manager

You might not realize that you’re sitting on a growing asset, an asset that is at its highest ever estimated level. That growing asset is the available equity in your home – equity that can be used to improve your financial position, such as paying off other high-interest debt.

So you’re probably wondering, if this is such a great asset to take advantage of… why aren’t other homeowners doing it? Well, there is some risk involved; the housing crash of 2008 is a reminder. When home values declined, some ended up owing more on their home than it was valued. While this serves as a cautionary tale, the economy looks much different now. Depending on your financial situation, borrowing against your existing equity could be a very sound option.

Is this the right option for you? When accessing the equity in your home, you should consider whether the new payment(s) improves your financial position. Most members have a rate that is currently below the market average of 4.750% and subsequently your payment may increase or fluctuate.

If borrowing against your equity is the right scenario, we will lend you up to 80% of your home’s value minus what is owed. A Home Equity Line Of Credit (HELOC) or Cash-out Refinance are the lending products to consider.

A HELOC is a stand-alone line of credit that has a variable interest rate meaning the rate and payment can change. Your primary mortgage stays intact and you are given a credit line that is based on your equity position. A HELOC gives you the flexibility to get cash as needed but is more risky because the Federal Reserve has been raising rates, and HELOCs rates adjust accordingly.

A cash-out refinance is a new mortgage that replaces your existing one and has a fixed rate. The additional money you want to borrow is added to the principal balance, and a new mortgage is issued at current market rates. The trend has been for members to select a cash-out refinance, even at a higher interest rate, because they are less comfortable with the variable rates on HELOCs.

If home improvement, paying off debt or buying a new car are in your future, tapping into the equity in your home may be an excellent way to accomplish your goals. Please contact us for a complimentary financial review. We’d love to assist you in understanding the options based on your situation.