Accessing equity for the cash you need
Inflation has affected the price of everything from gas to grapefruit, but it’s also helped boost property values and homeowners’ equity.
Many consumers locked in historically low mortgage rates a couple years ago and don’t want to lose that rate or reset the clock on the term of their loan by selling or refinancing.
However, several options can allow homeowners to get the cash they need to make home improvements, invest or cover today’s higher cost of living by accessing their increased equity.
A home equity line of credit converts a portion of a property’s established equity into a line of credit that can be used like a credit card, providing homeowners a source of funds at a significantly lower rate than most credit cards or personal loans.
According to Forbes, the average credit card interest rate in 2023 is 22.77%. The initial repayment phase with HELOCs comprises interest-only payments based on the used portion of funds and is structured to be relatively manageable and affordable. Underwriting and processing time is typically much shorter than with a standard mortgage, especially when working with a mortgage broker rather than a local bank or credit union.
Reverse mortgages allow seniors at least 62 years old to fund their retirement with a source of monthly income and/or a line of credit, or a lump sum. These loans are regulated by the Federal Housing Administration and are designed to allow seniors to age in place, in the best environment for them, while maintaining their financial independence. Homeowners can customize their monthly budget, and set aside a reserve for medical bills and the unexpected. Plus, the monthly allotments aren’t considered income, so they won’t interfere with Social Security income restrictions. Most importantly, homeowners always retain the title to their home.
Cash-out refinances are still an option even in this market, particularly for homeowners who want to drop the private mortgage insurance attached to their FHA loan. Homeowners can refinance into a conventional mortgage with no mortgage insurance once their loan balance reaches 78% of the property value. With the increased property values over the last few years, the time to refinance may have arrived sooner than many homeowners with FHA mortgages expected. Also, some lenders offer flexible terms. If there were 17 years left on the original mortgage, the new mortgage can have a term of 17 years so there’s no need to restart the repayment clock.
There are several ways for homeowners to get the funds they need without taking out costly personal loans, using high-interest credit cards, or resetting an existing mortgage’s low rate or term. Even a traditional cash-out refinance in the current housing market can benefit homeowners by removing their PMI and freeing up some room in their monthly budget. Homeowners whose financial situations could use an influx of cash should consult a mortgage loan originator to determine the estimated current value of their home and discuss the options for accessing their equity.
