Homeowners can tap into their home equity while keeping their low mortgage rates intact by utilizing Home Equity Lines of Credit (HELOCs) and Home Equity Loans (HELOANs).
1. Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit allows homeowners to borrow against their home’s equity on an as-needed basis.
HELOCs provide a flexible borrowing option where you can draw funds up to a set limit, only paying interest on the amount used. For example, if you have a $50,000 HELOC and use $10,000, you’ll only pay interest on that $10,000.
This flexibility allows homeowners to manage finances without compromising their low-interest primary mortgage.
2. Home Equity Loan (HELOAN)
A Home Equity Loan offers a lump sum amount borrowed against your home’s equity, repaid over a fixed term with fixed interest rates.
HELOANs are ideal for one-time large expenses like debt consolidation or major home improvements. For instance, if you need $30,000 for a home renovation, a HELOAN provides that amount upfront with predictable payments.
By choosing a HELOAN, homeowners can access necessary funds while maintaining their favorable mortgage rate.
3. Increasing Home Value
For “rate-locked” homeowners, HELOCs are a more affordable financing option to fund property value increases like Accessory Dwelling Units (ADUs).
Data shows the surge in ADU growth is due to factors like multi-generational living and cost-sharing.
4. Accessing Liquidity Amidst Debt Burdens
Consumers seek cost-efficient solutions to access liquidity. With high mortgage rates, traditional refinances are impractical. If today’s homeowner refinanced their mortgage to generate additional liquidity, it would result in a theoretical increase of ~47% in their monthly mortgage payment.
Mortgage Payment Increase Using Today Rates:
Instead, HELOCs and HELOANs provide viable solutions without giving up low-rate mortgages. According to Figure’s data, 37% of homeowners stated their Figure HELOC proceeds would be used for debt consolidation. An equal number said they’d pay for home improvements, likely because of the tax advantages associated with second-lien mortgages.
What Proceeds Are Used For When Tapping Equity In The Home:
5. The Big Picture: Home Equity Growth
The overall value of American home equity has seen significant growth in recent years. According to CoreLogic, as of May 2024, estimated total home equity stood at ~$33.8 trillion, compared to ~$19.5 trillion in 2019, representing 73% growth. This drastic increase highlights the growing importance of home equity in personal finance.
Total Equity Percentage Change from 2019 to 2024:
Even as Americans are experiencing a lock-in effect and many are unable to move into a larger home, the value of American homes is increasing drastically. This increased equity provides homeowners with a substantial resource to tap into for various needs without having to sell their homes or refinance at higher rates.
Final Takeaway
HELOCs and HELOANs are essential tools for homeowners to manage expenses and improve their homes without sacrificing low mortgage rates. With significant growth in home equity, these financial instruments provide a practical solution for cost-effectively accessing liquidity.
Call to Action
Don’t miss out on the opportunity to optimize your finances and increase your net worth. Reach out today for a free analysis of your overall debts, calculation of your blended rate, and a customized report to see if a HELOC or HELOAN is the right solution for you. Our team is ready to help you unlock the full potential of your home equity and achieve your financial goals. Contact us now to take advantage of this powerful, no-cost offer!
