Home ownership hits a record high – so you can type in your home for cash

Regardless of whether it is a kitchen remodeling or a special work area, most homeowners have at least taken up the idea of ​​a renovation project after a year of residence.

However, anyone who has tried to open up their house for cash might be surprised.

The skyrocketing real estate prices have resulted in a record amount of home equity. By the end of last year, around 46 million homeowners had total equity totaling $ 7.3 trillion. This is the largest amount ever recorded, according to Black Knight, a mortgage technology and research firm.

Even so, it is not always easy to access this money. Since the coronavirus pandemic began, several major banks have stopped offering home equity lines of credit to reduce their risk during economically uncertain times.

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Until last year, a HELOC, a revolving line of credit with better interest rates than a credit card, was a popular way to borrow against the equity in your home.

The average interest rate on this type of loan is 4.86%, according to Bankrate.com. Credit cards now charge an average of almost 16%.

Some banks still offer this option, although most have at least tightened their standards a little. That means that homeowners need to have higher credit scores and lower debt-to-income ratios.

“In general, the higher your credit rating, the easier it becomes to access equity,” said Tendayi Kapfidze, LendingTree’s chief economist.

There is a better way to free up some of that money, however, he added.

“Because the interest rates are so low, refinancing the payout is your best bet,” said Kapfidze. “The interest rates are lower than a home equity interest rate and lower than your existing mortgage rate.”

Homeowners may also be able to deduct the interest on the first $ 750,000 of the new mortgage if the withdrawal funds are used for capital improvements (although most households do not benefit from this write-off as fewer people are now listing).

This works well when mortgage rates are falling because even though you are refinancing your current mortgage and taking out a larger mortgage, you are lowering your interest payment at the same time.

Mortgage rates are currently near historic lows.

“Mortgage rates have fallen nearly a quarter percent since last peak in April and stayed below 3% for the past month,” Freddie Mac’s chief economist Sam Khater said in a recent statement.

“Low interest rates offer homeowners an opportunity to lower their monthly payment through refinancing. Our recent research shows that many borrowers, particularly Black and Hispanic borrowers who could benefit from refinancing, are still not pursuing the option,” said Khater.

In fact, the federal government is starting a new refinancing program specifically aimed at homeowners who haven’t used the low interest rates to reset their mortgage.

“If you haven’t looked at interest rates in the past year, now would be a good time to check this out,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

Interest rates below 3% are still widespread on a 30 year mortgage. “Even those who received fairly low rates are now refinancing at lower rates,” said Boneparth.

This is not 2005, you cannot pull out every last nickel that you have in the apartment.

Greg McBride

Chief Financial Analyst at Bankrate.com

Of course, there are also some restrictions when it comes to disbursement refinancing.

For starters, most lenders require that you keep at least 20% equity in your home, if not more, as a cushion in the event house prices drop.

While the entire industry tightened access to mortgages in the face of the pandemic, some banks also stopped offering these loans.

“This isn’t 2005, you can’t get every last nickel you have at home,” said Greg McBride, a financial analyst at Bankrate.com.

However, the most preferred terms are for borrowers with high credit scores. “Most people have enough credit, but the best rates go to those with 740 or higher,” said McBride.

After all, refinancing options may be short-lived. Mortgage rates are not going to stay low forever, especially if inflation rises.

“That should make refinancing even more urgent sooner than later,” said McBride. “The economy is heating up – these are the conditions that lead to higher mortgage rates.”

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