How your home equity is affected by home prices (and why now is a good time to borrow)

The Housing market It’s been a rollercoaster over the past few years, and it’s not likely to slow down anytime soon lifted up Bail rateA looming recession and fluctuating home prices keep both buyers and sellers on their toes.

After years of steady growth, home values ​​can started to decrease. As per latest information National Association of Realtors, nearly 70% of metropolitan area home prices across the country rose in the first quarter of 2023, while nearly 30% of metro area home prices fell. Latest information from S&P CoreLogic Case-Shiller Indices shows that prices are strongest in the Southeast and weakest in the West.

Below, we’ll break down how today’s housing prices could affect you Home equity — and why it might be one Good time to start tapping into it.

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How home prices affect your home equity

Even if you don’t want to sell your home, you can still benefit from knowing its market value.

Because today can affect the value of your home How much equity You may be eligible to borrow from it. Home equity is determined by the current market value of your home and how much you have paid toward your principal through mortgage payments.

For example, say you bought your home for $300,000. Over the past few years, not only have you made $50,000 of that initial mortgage payment, but your home has also increased in value by $400,000. That means the equity you’ve built in your home today is equal to $150,000 (the amount you paid plus appreciation).

However, the opposite can also be true. In the future, if the value of your home drops below what you paid for it and you owe your mortgage lender more than the home is worth, you could end up with negative equity.

Now is a good time to use your home equity

If you are in an area where Home prices are still highYou may benefit Tapping into your home equity now

If you’re planning a home renovation to increase your home’s value or you have high-interest debt that you want to consolidate, Home equity loan or Home Equity Line of Credit (HELOC) Could be a good alternative.

These loans are usually carried Good interest rate You will find with personal loans or credit cards, and you may even be Eligible for tax deduction If you use them to improve your home. However, they also require an additional amount of responsibility because your loan is secured by the value of your home.

“With a home equity loan or HELOC, the lender can force you to sell your home to pay off the loan if you miss a payment,” says Keith Spencer, CFP, founder of Spencer Financial Planning. “If you can’t make the payments, you’re putting your home at risk. Many other forms of debt are unsecured, and the lender has fewer options if you can’t pay.”

Aside from home price fluctuations, interest rates are another factor to consider.

Federal Reserve only Interest rates move up For the tenth time in a row, that means borrowing costs will soon become more expensive. Although home equity loans and HELOCs carry much better interest rates than other types of loans, they can still be impacted by higher rates. Good rate locking Sooner rather than later can save you a lot of money over the life of the loan.

Learn more about your home equity options now.

Bottom line

When home prices rise, homeowners can benefit from the increased value of their home investment. But when home values ​​are declining, things can get more complicated. If you are concerned that home prices in your area may soon be at risk, you may want to consider a Home equity loan or HELOC right for you

The relatively low rates and potential tax benefits these products can help you get started on a renovation or repair can help Keep the value of your home high – Regardless of future market conditions.