Home equity trends and cash-out refinance considerations

Are you a homeowner looking to access the equity in your home? With current home equity trends and the effects of the pandemic on the housing market, now may be the perfect time to consider a cash-out refinance. In this article, we’ll dive into the latest home equity trends and explore the various considerations you should take into account when deciding if a cash-out refinance is the right move for you.

Home Equity Trends

Home equity is the percentage of your home’s value that you own outright. As you pay off your mortgage, you build equity in your home. Additionally, as the value of your home increases, either due to market conditions or home improvements, your equity also increases. According to the Federal Reserve, Americans currently have over $18 trillion in home equity, with an average of $130,000 per homeowner.

The Effects of the Pandemic on Home Equity

The unexpected pandemic has had a significant impact on home equity trends. At the start of 2020, the housing market was booming, and many were expecting another year of steady appreciation. However, with the rise of remote work and the desire for more space, many city dwellers are now flocking to suburban and rural areas, driving up home prices in those markets. This shift has contributed to an average increase of 12% in home equity for homeowners who are primarily located in suburban or rural areas, according to CoreLogic.

On the other hand, homeowners in urban areas have experienced a decline in home equity due to decreased demand and an increase in inventory. The combination of these factors has led to a more uneven distribution of home equity across the country.

Cash-Out Refinance Considerations

A cash-out refinance involves replacing your existing mortgage with a new one for a higher amount, and taking the difference in cash. This can be an attractive option for homeowners looking to access their home’s equity. However, before making this decision, it’s essential to consider the following factors.

Your Home’s Current Value

If your home’s value has increased significantly since you purchased it, then you may have more equity to tap into. However, if your home’s value hasn’t changed much, or if it has decreased, a cash-out refinance may not be the best option for you. It’s crucial to have an accurate understanding of your home’s current market value before pursuing a cash-out refinance.

Interest Rates

Interest rates are a crucial factor to consider when weighing the pros and cons of a cash-out refinance. If you can secure a lower interest rate than your current mortgage, it may be worth it to refinance and access your home’s equity. However, if interest rates have increased since you initially purchased your home, it may not be advantageous to refinance.

Your Financial Goals

It’s essential to have a clear understanding of your financial goals before deciding to do a cash-out refinance. Are you looking to pay off high-interest debt, make home improvements, or invest the money? Be sure to consider the long-term implications of your decision and how it aligns with your overall financial plan.

Closing Costs and Fees

It’s important to consider the closing costs and fees associated with a cash-out refinance. These costs can add up and may make the overall expense of a cash-out refinance less attractive. Be sure to get estimates from multiple lenders and factor in these expenses when making your decision.

Repayment Terms

A cash-out refinance may also involve changing your repayment terms. For example, if you currently have a 30-year mortgage and refinance for a new 15-year mortgage, your monthly payments will likely increase. It’s essential to evaluate the impact of these changes on your budget and overall financial plan.

Final Thoughts

While the current home equity trends and effects of the pandemic may make a cash-out refinance a tempting option, it’s essential to carefully consider your individual circumstances before making this decision. Be sure to do your research, consult with a financial advisor, and compare offers from multiple lenders to determine if a cash-out refinance is the right move for you.