Once you know your home’s value, here are five smart ways that you can use your home’s equity to work for you.
Determine if you want to ‘cash-out.’ If you’ve been waiting since the last real estate market crash for your home’s value to appreciate, now may be just the time. Values in the Des Moines metro area have grown significantly in the last ten years, however projections are for a much slower growth rate going forward. If you’ve been sitting on the sidelines waiting to make a move or a move-up, now may be the perfect time.
A cash-out refinance. If you’ve considered a lower mortgage rate against the cost to refinance and decided a refinance seems to be a toss-up, this could be the tiebreaker: a cash-out refinance. Tapping some of your home’s value in a cash-out refi can let you make improvements to your home and property that you’ve been putting off. The improvements will add value to your home in the long term. If you need to consolidate debts to a lower interest rate, this is also an option. Be careful not to run up additional debt again after paying off these other debts.
Refinance away mortgage insurance. As home prices have climbed during the last ten years, fewer homeowners are underwater or facing “negative equity” – owing more on a home than its market value. Rising home equity allows another refinance opportunity: getting rid of mortgage insurance. If someone has an FHA loan, for example, they are paying between 0.85% and 1.35% for mortgage insurance. Once you have equity in your home of 20% or more, this will allow your lender to drop the mortgage insurance requirement. You don’t even have to refinance your loan to take advantage of this. Your home’s equity is the market value of your home minus the amount owed. If you’ve got more than 20% equity, you’re eligible to get your mortgage insurance removed and save up to a few hundred dollars on your monthly payment.
Don’t forget about HELOCs. A home equity line of credit (HELOC) can provide the same access to your home’s equity as a home equity loan but with the added benefit of allowing draws against your credit line as needed. When you use a HELOC for the right reasons, this can be a wealth-building strategy. If available, consider a fixed rate HELOC loan as interest rates are predicted to continue rising in the near future.
Appeal Your Taxes. You may not know this, but every two years, you have the option to appeal and lower your property taxes. Only 2% of homeowners appeal their assessments, which is the first step in lowering taxes. Here’s an even bigger disconnect: some 60% of properties are overvalued by assessors. So instead of throwing out your next property assessment notice, take a look and compare it to the online valuation that you received. If your assessment is higher than your value, you may be eligible to appeal and lower your property taxes.
If you have any questions about any of these options and how to proceed, I’m here to help. No high pressure and no obligation, just a quick conversation to help you with your real estate goals. If you’re looking to buy or sell a home in the future, I’d love to discuss these options as well.