Unlocking Home Equity: How Americans Can Access Nearly $30 Trillion

Many Americans find themselves in a situation where the value of their homes has increased significantly. According to the St. Louis Federal Reserve, homeowners are now sitting on nearly $30 trillion in home equity, just below the peak in 2022.

This means that, on average, homeowners have around $200,000 of equity that can be accessed. Most lenders allow borrowers to take out this amount while still maintaining a 20% equity cushion in their homes.

Previously, refinancing was a popular way to tap into this equity. However, with mortgage rates currently over 7%, this option is becoming less attractive.

As a result, many borrowers are opting for a second loan in order to access cash without losing their low interest rates. Another option is a home equity line of credit (HELOC), which offers better rates than credit cards and allows homeowners to borrow against a portion of their home’s equity.

According to the Mortgage Bankers Association, originations of home equity loans and HELOCs increased by 50% compared to two years ago. This indicates that there is significant untapped potential for home equity lending.

When considering borrowing against your home, it’s important to note that terms can vary greatly. A report from LendingTree found that the average home equity loan amount offered to homeowners is $104,102. The interest rates also vary, with Iowa having the most favorable terms at an average rate of 9.88% compared to Maryland, which has the lowest average rate of 7.88%.

While rates for home equity loans are lower than credit card rates, it’s important to remember that accessing this money may not be easy for everyone.

In conclusion, homeowners in America have significant wealth tied up in their homes. With various options available to access this equity, it’s important to carefully consider the terms and suitability of each option before making a decision.

During the peak of the Covid pandemic, fewer banks provided this option, as lenders tightened their standards to mitigate their risk. However, access to Home Equity Lines of Credit (HELOCs) has improved since then. It’s important to note that borrowers with higher credit scores and lower debt-to-income ratios are more likely to secure the most favorable terms.

Jacob Channel, LendingTree’s senior economist, commented on the advantages and disadvantages of home equity loans. While they can be utilized for major renovations or consolidating high-interest debt, obtaining one is more challenging compared to other types of debt. Defaulting on a home equity loan can have severe negative consequences, including the potential loss of one’s house.

According to Channel, borrowers should not hastily pursue a home equity loan without fully comprehending the associated risks. Bachaud, another expert, advised considering various lenders, their terms, interest rates, and costs. It is prudent to consult multiple mortgage companies or loan officers and carefully assess all factors before making a decision.