Home Equity Loan Trends: More Options

Highlights

  • Homeowners have nearly $6 trillion in tappable home equity.
  • Fluctuating interest rates creates different home equity loan options.
  • Use the Bills.com Home Equity Loan Calculator to check your best home equity option.
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Home Equity Loan Trends - 2019

Home prices rebounded from the 2007 crash. The amount of equity available to homeowners dropped during 2018. However, according to a leading mortgage data firm, BlackKnight, as of the beginning of 2019,

"there is $5.714 trillion in tappable equity.

Much of that drop has been in high priced areas, which saw some market corrections in home prices.

Tappable Equity: They define tappable equity as the amount of cash available to homeowners when you subtract their mortgage from 80% of their current home value. (For example, if you have a home worth $300,000 and your mortgage balance is $200,000, then your tappable equity is $40,000.

Millions of homeowners lost billions of dollars in the housing crash and struggled with underwater properties, foreclosures, short-sales, and loan modifications. One vital lesson is that a home is a valuable long-term asset. Home prices can go down, and it is wise not to borrow too much money.

However, with the increase in home prices, it is also wise to review your financial situation and see if your home has tappable equity. Maybe you can use the extra money to make home improvements, consolidate debt, or pay for a child’s college expenses. A home equity loan (HEL) or a home equity line of credit (HELOC) can provide an affordable, cost-effective solution. Or maybe you can lower your monthly payments and use the extra cash to build up your savings and retirement accounts. A cash-out mortgage might be the best solution.

Higher Home Prices - More Equity in Homes

Rising home prices increase the equity position of many homeowners. Although the last two quarters showed mild declines, overall home prices are above the previous 2007 peak and way above the lows of 2012.

According to a recent Core Logic report from March 2019 :

"Our forecast for the CoreLogic Home Price Index predicts there will be a 4.5 percent increase in our national index from December 2018 to the end of 2019. They estimate that “In the fourth quarter of 2018, the average homeowner gained approximately $9,700 in equity during the past year. Nevada had the highest year-over-year average increase at $29,400.”

They estimate that “In the fourth quarter of 2018, the average homeowner gained approximately $9,700 in equity during the past year. Nevada had the highest year-over-year average increase at $29,400.”

Geographic Concentration - California Leads the Way

Home Equity loan opportunities are not equal. Home wealth is not distributed equally over the nation. Not surprisingly, California leads the way in terms of home wealth and home equity loan opportunity. Black Knight estimates that:

Despite California's tappable equity declining by more than $200B (-9%), it continues to hold 37% of the national total, and 6.5X as much as Texas, the next closest state (with $322B)

In the fourth quarter of 2018, the average homeowner gained approximately $9,700 in equity during the past year. Nevada had the highest year-over-year average increase of $29,400. Check out the Core Logic Graph of National Homeowner Equity Gain Y-o-Y for 2018.

Fluctuating Interest Rates - Refinance, Cash-Outs, or Home Equity Loans

Mortgage rates vary. For example, according to Freddie Mac’s Primary Mortgage Market Survey, 30-Year Fixed Mortgage Rates were 4.5% at the beginning of 2019. Mortgage rates dropped to 4.06% at the end of March and jumped back to 4.26% by the end of April. If you look back a little longer, you can see that 30-year FRM rates were as high as 4.94% in November 2018 and as low as 3.42% in October 2016.

How should mortgage rates affect your decision to tap into your home equity?

Firstly, low mortgage rates are a great incentive to refinance your mortgage. You can either save money or lower your monthly payment. If mortgage rates are low, and you want to use your home as a source of cash, then consider a cash-out refinance. It allows you to save on your current mortgage and borrow cheap money. You don’t have to take out a 30-year mortgage. If you can afford higher monthly payments, then check out a 15-year FRM.

BlackKnight predicted that there would be an increase in cash-out refinancing due to low mortgage rates. However, as interest rates rose during the first quarter of 2019, HELOCs are becoming a more attractive option and the incentive to refinance dropped.

You most likely want to avoid increasing the interest rate on your current mortgage. A cash-out would be an expensive alternative. Instead of refinancing your existing mortgage, take out a second mortgage, either through a lump-sum home equity loan or a HELOC.

An exception to the rule would be if you want to lower your payment, in which case a cash-out refinance might make sense. For example, if you wish to lower your current mortgage payment and consolidate credit card debt. Let's say that you currently have a mortgage with a $200,000 balance at 4% % and 20 years left to pay. Also, you have $25,000 of credit card debt at 16% interest (and are struggling with your minimum payments at 2% of your balance), then your monthly payments would be about $1712. You could lower your monthly payments by $373 if you keep your current mortgage and take out a home equity loan for $25,000 at 4.5%. If you extend your existing loan and take out a cash out mortgage at 4.5% for 30-years, then your monthly payments would be $573 less than your current situation. Don't forget to take into consideration additional closing costs and the amount of time it would take to pay off all your debt.

2019 Home Equity Trends: Which is Your Best Home Equity Loan Solution?

It is vital to follow home equity loan trends including mortgage rates, home prices, and your own financial health. Are you saving enough money each month? Are you paying to much to service your debts? 

If you own a home an built up equity through paying off your mortgage or rising home prices, then consider the benefits of one of the various home equity options. Check out Bills.com Choosing a Home Equity Loan Calculator to find the best home equity option.

Use Bills.com Home Equity Loan Calculator to see how much you cash you can take out of your home and your monthly payments.

Home Equity Loan Calculator

Follow the five steps to calculate your Home Equity Loan options:

  1. Calculate Your Home Equity: You need to know your mortgage balance and home value.
  2. Calculate the amount of mortgage you can take: Usually, lenders will go up to an 80-85% LTV.
  3. Calculate your monthly HEL payment: You need to estimate today's mortgage rates and decide on the loan repayment period.
  4. Calculate your current monthly payment: Add in your current interest rate and amount of time left to pay. (This payment doesn't include your property taxes and insurance payments).
  5. Find out your total payments and LTV.
Your home equity depends on the value of your home and your mortgage balance. If you have more than one mortgage, then use the total amount for your “Mortgage Balance.” The result box shows both your Loan to Value ratio (LTV) and the total amount of equity, in dollars, you have based on current values.
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=
LTV
(Loan to Value Ratio)
My Equity is Now:
After completing step one you have a good idea of how much equity you have in your home. However, the amount of cash you can take out of your home depends on lenders underwriting rules. In general, lenders offer up a LTV up to 80%, although some lenders do offer higher ratios.
Maximum Cash Available Is:
Figure Out How Much Your Payment will be based on current mortgage rates, the length of the loan, and the amount of the Home Equity Loan
Home Equity Loan Monthly Payment:
Calculate Your Current Mortgage Payment based on the current balance, number of years left to pay, and your current interest rate. (This is for principal and interest only and doesn't include your property taxes, property insurance and if applicable mortgage insurance costs).
Existing Mortgage Payment Is:
Review your HEL and Current Mortgage based on LTV and Monthly Payments.
Home Value:
Mortgage
Amount
Monthly Payment
LTV
Current
Home Equity
Total-Mortgage
Make sure the amount doesn't exceed maximum amount available
Get Mortgage Rates!
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