How to take advantage of high home prices
After a decade of rising home prices across the U.S., home values in some regions began stabilizing earlier this year — but new data shows that prices are again booming throughout the country.
Home prices were up for the third consecutive month in March, with 92% of markets across the country seeing price increases, according to Black Knight’s monthly Mortgage Monitor. What’s more, 40% of markets have seen prices return to peak levels, the report shows.
Homeowners know that home prices can fluctuate over time, so it’s smart to take advantage of today’s high prices and add sustainable home value that you can benefit from over the long run.
In fact, instead of continually monitoring ever-changing market values — which isn’t a healthy thing for any homeowner to worry about, says Charles H Thomas III, CFP, founder and president of Intrepid Eagle Finance — “Focus on improvements to your home that improve quality of life and build value over the long term.”
Here are a few ways you can take advantage of high home prices to improve your long-term home value.
Explore your home equity options here now.
How to take advantage of high home prices
Whether you’re a long-time homeowner or you bought a home at the peak of the pandemic’s housing boom, there’s a good chance your home has appreciated in value over the past few years. Even if you’re not looking to sell your home in the near future, you can tap into the value of your home to benefit from today’s home prices.
The tools below allow you to access funds that you can put toward improving your home — and potentially benefit from tax deductions. But they may also be useful for improving your financial situation overall, through debt consolidation, paying for college expenses or other things that typically carry higher interest rates.
Here are a few borrowing options that will allow you to tap into your increased home value today:
Home equity loan
Home equity loans allow you to borrow from your home’s equity (its current market value minus the amount you still owe on your mortgage). Despite rising interest rates, home equity loans are often among the lowest-rate borrowing options available for homeowners today — especially compared to double-digit personal loans or credit card rates that can exceed even 20% APR. However, home equity loans are also secured by your home, meaning it’s exceedingly important to pay back what you owe, or risk foreclosure.
Lenders typically allow you to borrow up to 80% of your home equity and these loans carry fixed interest rates. That means the rate you lock in today will be how much you accrue on your balance until it’s paid in full. Home equity loans can be a good option for homeowners who want to lock in a rate before rates go up, and have a plan in place for paying back the balance in full.
Explore some of the best home equity loan rates available here now.
Similar to home equity loans, home equity lines of credit (HELOCs) allow you to borrow against the equity you’ve built in your home. The line of credit you’re approved for can depend on different factors in your application but is also generally capped around 80% of your home’s equity. Once you’re approved, you can choose how much of that credit line you actually want to borrow. Then, you’ll only pay back — and accrue interest on — the amount you actually borrow.
Also unlike home equity loans, HELOC rates are variable. As interest rates rise, that means you could take on a higher rate. But if rates fall in the future and your HELOC rate drops too, you could pay less in interest over the lifetime of the loan. HELOCs may be a good option if you can account for rate fluctuations that could change your monthly payment over time.
A cash-out refinance is another way to tap into your home equity. With this option, you can refinance your mortgage and take the amount you’ve built up in equity as cash. The new loan amount will be larger — but rather than taking out a second loan, you’re simply replacing your original mortgage with a separate loan.
However, you may want to be cautious before choosing this option today. Depending on interest rate moves over time, you could end up with a higher mortgage rate and pay more over the lifetime of your loan. It can help to have a strong credit profile before you apply and to know how much cash you need so you can limit the amount you borrow and ensure your new monthly payments are still affordable.
Check out the refinance rates you may qualify for today here.
Why take advantage of home prices now?
If you’re considering tapping into your home equity, doing so when home prices are high can be a big win. If you wait until home prices drop, the amount you’ll be able to borrow could decrease significantly.
Say your home is currently worth $500,000 and you owe $200,000 on your mortgage. Your available equity today is around $300,000. But two years from now, maybe the market will change. If your home value adjusts to $450,000 and, by that time, you owe $180,000 on your mortgage, your equity would drop to $270,000, meaning you lost $30,000 in equity despite paying more toward your mortgage over that time.
That’s why it can be advantageous to tap into your home equity when prices are favorable. Using the money to make lasting improvements — or improve your overall financial situation — can put you in a better financial situation regardless of future market changes.
Start taking advantage of your home equity and compare today’s top rates.