Am I Rich in Home Equity? It’s possible - Even If Prices Are Cooling
What does it mean to be ‘rich in home equity’?
You only own the percentage of your home that you’ve paid off, which means your mortgage lender owns the rest.
Home equity is the difference between the market value of your home and the outstanding balance of your mortgage. It's essentially the portion of your home’s value that you own outright.
If you’ve paid down your mortgage for a good amount of time or if home values have increased in your area, chances are you have significant equity built up in your home.
That equity is value that you can tap into to make upgrades or repairs to your home, pay off high-interest debt or cover other unexpected expenses.
How to check your home equity (without listing your home)
Checking your home equity is a relatively simple equation.
Determine your home’s current market value
Connect with an expert or leverage online tools to get a ballpark idea of how much your home is worth. Tools may not be accurate, so connecting with a professional may offer a more precise evaluation. You can also check the recent sale prices of similar homes in your neighborhood.
Find your mortgage balance
Check your latest mortgage statement to see the remaining principal on your loan. You can ask your lender for this information, too. Be sure to include other debts secured by your home, such as a home equity line of credit (HELOC) or home equity loan.
Calculate your home equity
Subtract your mortgage balance from your home’s estimated market value to determine your home equity. For example, if you owe $150,000 on your mortgage and your home’s estimated value is $350,000, your home equity is $200,000 ($350,000 - $150,000).
Here’s a simple formula:
Current market value - mortgage balance = home equity
Why you might still have more wealth than you think
Home values have increased quite a bit in the past several years. If it’s been some time since you bought your home, the value of your home might have increased more than you expected, potentially boosting your home equity significantly.
Smart ways to use your home equity without refinancing
Owning a home could give you access to money when you need it most. If you finally want to fix that leaky roof or add a home office, or if a surprise medical bill landed in your lap, tapping into home equity could be a way to access funds without a refinance.
A home equity line of credit (HELOC) lets you tap into the value of your home and borrow what you need when you need it. It works kind of like a credit card but usually with a lower interest rate.
A home equity loan allows you to use your home as collateral to access cash in a lump-sum payment. In effect, you are borrowing against your built-up equity at a fixed rate determined by current mortgage interest rates.
You can use money from either of these options for any number of expenses, though experts usually recommend using the funds to increase the value of your property with projects like repairs, upgrades and additions. You can, however, also use the money for debt consolidation, education or medical expenses depending on your needs.
Why now might be the right time to tap into home equity
Refinancing is a good way to save some money* or get cash back, but if mortgage interest rates are higher than what you have now, a refinance might be less attractive as an option.
Tapping into the value built up in your home with a HELOC or home equity loan will leave your current mortgage in place at its current interest rate. You can still get the cash you need to complete projects without taking on a new mortgage with a potentially higher rate.
Are you ready to explore how a Guaranteed Rate Affinity HELOC could help you reach your financial goals? Find your rate now!
*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Guaranteed Rate Affinity for current rates. Restrictions apply.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.