Home Equity is at an All-Time High; Should You Get a HELOC?

Blog posted On June 14, 2022

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Many mortgage holders are sitting on a gold mine, according to data released last week by Black Knight. Tappable home equity – the amount of equity owners can borrow while leaving at least 20% in their home – soared to another record high in the first quarter (Q1) of 2022. With this growth, homeowners have even more financial power, security, and freedom. Common uses for tappable equity include home improvements, debt consolidation, unexpected expenses, and more. However, to access this equity, homeowners would need something like a cash-out refinance, home equity loan, or Home Equity Line of Credit (HELOC).

Home Equity Hits Record Levels

After the first quarter of 2022, American mortgage holders were sitting on a combined $11 trillion in tappable home equity – a record high. “That’s a result of an astonishing $1.2 trillion gain in tappable equity in the first quarter of 2022 alone – the largest such quarterly growth ever recorded,” said Black Knight Data & Analytics President Ben Graboske. “With the average-priced home up 42% in value since the start of the pandemic, current homeowners with mortgages are sitting on an average $207,000 in [tappable] equity.”

Why a HELOC Might Be a Good Idea for Current Homeowners

A HELOC offers homeowners unlimited access to their equity through a revolving line of credit. Unlike cash-out refinances, where you make a one-time withdrawal of money, HELOCs allow you to withdraw equity whenever you need. Thus, HELOCs tend to offer more flexibility. If you decide later down the road that you want to make some home improvements or pay off unexpected medical bills, you have that option to tap into equity without refinancing.

Another way you can take advantage of a HELOC is by using some of the equity you’ve earned to pay off any existing debt right now. This way, you can consolidate any high-interest debt – credit card debt, student loans, or auto loans – before interest rates rise any higher.

At this point you might not want to do a full cash-out refinance if you took out your original mortgage within the past three years. You likely have a very good mortgage rate right now if your home loan is less than three years old. If you were to do a cash-out refinance, you’d likely wind up with a higher interest rate. Taking out a HELOC as an additional mortgage would make more sense because you could keep your original interest rate on your primary loan and get an adjustable rate for your HELOC. Adjustable-rate mortgages (ARMs) typically start out with lower interest rates than fixed-rate mortgages. Plus, the monthly payments on HELOCs are much more flexible, offering interest-only payments during some periods of the loan.

How to Decide if a HELOC is Right for You

  1. Check how much equity you have (ask us if you don’t know)
  2. Evaluate your choices between a HELOC or cash-out refinance (head to our cash-out refinance calculator)
  3. Weigh out the benefits of taking out a HELOC instead
  4. Contact us for additional guidance and next steps!

Sources: Black Knight