Homeowners are currently seeing record highs in possible equity. Since the housing crash in 2012, the amount in equity that people have in their homes has been on the rise. The housing crash was a devastating time for many homeowners who could not pay their monthly mortgage payments on a house that was no longer worth the amount they owed. Now the value of homes is at an all-time high.
With this increase in available equity more people have the ability and freedom to borrow this money to make other purchases. This can help bolster the economy as this money is circulated to other areas of business.
So how can homeowners tap into this cash reserve and leverage?
There are different options for a homeowner to use the money that is available to them against their home. The first is to take the original loan and refinance it into a bigger loan. This may cause the loan to change its interest rate.
Another option is to use a HELOC. A HELOC is a home equity line of credit. It can be best explained as using the equity of the home as a checking account. If a HELOC does not fit the needs of the homeowner they can take out a home equity mortgage which is simply a lump sum of cash.
In the past, HELOC has been the most favored option. However, this may be changing. With a new tax law in place, any interest paid on a HELOC will no longer be deductible. Previously, a homeowner could deduct up to $100,000 of interest that was paid on an equity loan.
Additionally, now homeowners can deduct interest on up to $750,000. This has changed as well under the new tax law, taking a significant drop of $250,000 from the previous $1 million benchmark. With this change in how deductions can be made, many people are looking to do a cash-out refinance in replace of taking out a HELOC.
Cash-out refinances are quickly becoming the go-to for homeowners. In the last year, sixty-two percent of refinancing was a cash-out refinance. While this is much more than it has been in recent years, it is still not back at the levels it was when the housing market was at its peak in 2005. At that time homeowners were utilizing their equity in their homes to the fullest.
Many people have taken to plunge into using their home’s equity. However, there are many homeowners that are unsure of the stability in the housing market. They fear another housing crash and are wary of trying to borrow money.
At the same time lenders are being more cautious. It used to be much easier to access the equity on a home. Now mortgages have more restrictions and guidelines to help protect the lenders which in turn forces some homeowners jump through hoops to use their equity.
Owning a house gives homeowners an opportunity at using the equity of the home. This equity is an untapped source of money for someone if they are looking to engage in a large project or reinvest into something else. As the housing market grows stronger more homeowners can look to take advantage of their opportunity to unlock this potential cash reserve.