Home Equity – Is it time for a check-up?
28 Jul 2022 by Erika Loker

In this issue:

  • What is “Home Equity”?
  • Why is knowing your Home Equity Important?
  • How to get Home Equity out of your home
  • Equity Checkup – A new service!

 

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What is “Home Equity”?

“Home Equity” is the net value of your financial investment in your home.  It is calculated by taking the current market value of your property, and subtracting your current mortgage balance.  The current market value of your property is determined by a set of complex calculations using other comparable properties that have recently sold on the open market.

With the prices of homes rising substantially over the past three years, homeowners who have small or non-existent mortgage balances find themselves with surprisingly high amounts of home equity – and a surprising world of new possibilities as a result.

Did you know…

As of March of 2022, merely 35.2% of homeowners in the United States own their home outright (i.e., have no mortgage balance).

Why is knowing the Amount of Your Home Equity Important?

Knowing how much equity you have in your home can be important in the areas of:

  • Estate planning – whether to use trusts as a vehicle to minimize taxes on death
  • Updating your Will
  • Unlocking accumulated value without needing to sell your home or take out a higher-interest personal loan

How to get Home Equity out of your home

There are three main methods by which you can access the cash value of your home, without selling it or taking out a higher-interest personal loan.  These are:

  • Home Equity Loan
  • Home Equity Line of Credit (HELOC) and
  • Cash-Out Refinance

Home Equity Loan

A home equity loan is a second mortgage, that is a fixed amount that is repaid over a predetermined period of time (exactly as a primary mortgage would). While in many respects a home equity loan is similar to a primary mortgage, it usually comes with an interest rate that is higher than that for primary mortgages.  Note that closing costs are usually incurred in setting up a home equity loan.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is a second mortgage, but with a revolving balance.  This means that you borrow only the amount that you require.  You then pay it off, then you may borrow it again.  This is similar to a credit card, but with a much lower interest rate.  As with a credit card, your monthly payment due is based on the amount of credit actually used.  A HELOC may come with a checkbook or debit card, making accessing funds convenient.

Setting up a HELOC usually doesn’t involve closing costs (as with the other two methods).  The interest rate on these lines of credit are usually tied to the prime rate, meaning that the rate of interest will vary over the line of the line.

Cash-Out Refinance

This method of accessing your home equity does not involve an additional loan, as the previous two methods do.  This method involves refinancing your home for an amount greater than your current mortgage balance, which allows you to take the difference in cash.

The closing costs for this kind of refinance can be high, due to the fact that you end up with less equity in your home, causing banks to possibly consider you a higher-risk borrower.

Equity Checkup

Do you wonder about the amount of equity you have in your home? 

Are you open-minded to having an equity checkup performed on your property? – Please contact me for a free, no-obligation analysis.  I will need your current mortgage balance, so please have this information handy.

 

Do you know anyone who could benefit from the information in these newsletters? – Feel free to forward this to them, or provide me with their name and email address.

Erika Loker

Erika brings to the table twenty years of analytical experience, which is invaluable in the real estate industry. She has a passion for helping others achieve their goals and dreams. As a Realtor with the SRES (Seniors Real Estate Specialist) designation, Erika is educated and is connected to a myriad of resources to cater to this "more experienced" segment of homeowners, who have needs and motivations that are distinct from their younger counterparts. Erika’s education in the fields of accounting and real estate gives her a breadth and depth of knowledge that not many have achieved in the real estate industry. Erika graduated from the University of Waterloo (in Ontario, Canada) in 1999 with a degree in Accounting. She played tennis competitively from the age of about 10, competing until her mid-20’s (UW varsity from 1994-1999).