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America’s Home Equity
$5.7 trillion. That’s the amount of “tappable” equity Americans were collectively sitting on at the end of 2018, according to a leading property data provider*. Equity is the difference between what a person owes on their mortgage and what their home is worth. Tappable equity is the amount a homeowner could withdraw with a cash-out refinance and still be at the acceptable loan-to-value threshold of 80%.
Reasons for Cash-out
Cash-out refinances let homeowners take the money they’ve paid into their home and invest it in other things. Primary Residential Mortgage, Inc. originates thousands of cash-out home refinances each year, and Salt Lake City Branch Manager, Don Worthington (NMLS #38739), says there are many different reasons people tap into their homes. “Home Equity is simply a tool available to help homeowner’s reach their goals. The reasons for doing them vary, but it is usually part of a bigger strategy to meet new objectives.”
So what are some of these objectives?
Home repairs, upgrades and “green” improvements
What better way to use home equity than to improve your home? Homes require maintenance and upkeep, so a new roof and furnace may be one reason to pull some cash from your property. Backyard upgrades like outdoor kitchens and swimming pools can increase the value of your home as well.
Technology is also driving renovations. Pushing homes into the 21st century is another way people are investing equity back into their homes. From security systems to utilities to kitchen appliances, everything is “smart” these days and homeowners (and future buyers) want these conveniences.
“Green” improvements are big as well, and there are cash-out mortgage programs specifically for environmental upgrades. Fitting your house with solar panels, tankless water heaters, “cool roofs,” or double pane windows improves efficiency and can reduce utility bills, enhances quality of life and can increase the value of your home.
Bill Consolidation
Consolidating several bills into one payment is another cash-out refinance goal. Often, wrapping expensive student loans or credit card debt into your home loan lowers monthly expenses. This can free up more money in your monthly budget and could potentially save you interest costs.
You Earned it!
If you’ve been paying into your home for a while, it may just be time to withdraw some of it to pay for something you’ll never forget, like the vacation of a lifetime, a wedding day or a child’s college education. Because each mortgage payment you make typically adds to your equity, a home can act like a savings account. Sometimes, it’s bigger than your actual savings account and a cash-out refinance lets you make a withdrawal.
According to Worthington, homeowners typically achieve a few objectives at once. “It’s usually a conversation about their future plans. An experienced Loan Officer can work through the financial side of a refinance, but also talk through short-term and long-term goals to help customers,” he says.
*https://www.blackknightinc.com/black-knights-february-2019-mortgage-monitor/