According to Market Watch, home equity has hit a record high. Equity in a home, the difference between how much the home is worth versus how much you owe on the home, has increased greatly over the last few years. Most Americans are actually sitting on quite a pile of equity in their homes. This means that a lot of folks are taking out a home equity loan or HELOC for home renovations and others are selling their property gaining quite a bit of money to put down on another home.
But what if you are in the middle? What if you don’t necessarily want to take money out but you’re not ready to sell? Is there an option for those that can take advantage of the equity without selling or refinancing?
There are a couple of options but they can be quite complicated.
Consider taking out a futures contract.
This is a type of contract designed to guard against a loss in your home’s value. Perhaps you want to sell in the future but you’re not quite ready now. This might be a good option but there are a lot of costs involved including opening a sizable account with a futures trader. If home prices continue to go up, you might lose money with a futures contract so this option may not be best for individual homeowners. This might work better for multifamily or or a commercial investment as well as a very large real estate investor who understands the intricacies of this type of contract.
One year put option.
This is another fairly complicated option for those that don’t want to sell but also don’t want to pull money out. This can allow homeowners to sell shares of homebuilder stocks at a fixed price. If home prices fall and push the price of homebuilder stocks down, the homeowner could buy the cheaper shares and sell them at a higher price fixed rate with this option. Again, highly complicated.
A better option.
A HELOC or home equity loan still is one of the best options to utilize the equity that you have. Rates are still extremely low for these types of home equity loans and you can use the equity to pay down credit card balances or other high-interest rate debt giving you an immediate return on the difference between the two rates. For instance, if you can get a HELOC less than 3% and you owe a 20% interest rate on a credit card, you can easily save at least 17% or more in interest rates by paying off those loans instead.
You can also use equity cash to make home improvements which will naturally add more value to the house in other ways. It’s technically using the cash that the home has provided to put back into the home increasing your equity even more. For instance, if you took out $40,000 in a HELOC and put $40,000 into the home, the value might go up by $50,000 or more giving you a free $10,000 or more in equity just by making that simple move.
Related: 5 Great Reasons to Refinance Your Home
However, if you want to sell but are just not quite ready, trust that your home values will generally increase. Even if you are not moving for the next 2 to 3 years, you’ll have paid down that much more principle on your mortgage which could give offset any loss in value.
If you’d like to run some numbers on a HELOC, home equity line of credit or a home equity loan or simply a refinance for shorter terms and pull out some money for whatever you want, give me a call. Let’s run some numbers and see what makes sense both now and in the long run for your financial security.
More:
Home Loan Programs That Beginners Need to Know About
5 Burning Questions to Ask Your Lender Before Closing
How to Increase Your Credit Score for a Lower Rate
