The value of your home has likely increased in today’s market. In fact, in some areas of the country, properties have doubled in value over the last two years. Because of this, many homeowners, like you, may be wondering what, if anything, they can do with this burst of equity. Here, we’ve outlined several financial moves you may want to consider at this time.
The financial move that quickly comes to mind when homes experience an explosion in equity is to sell the house and pocket the profits. Here’s what to consider before making that move, though.
First, if you plan to buy a new home in the same area as your existing home, think twice about selling because the homes in your area will have leaped in price, too. If, however, you’re looking to downsize and find a smaller and cheaper place to live, this can be a great time to sell your existing home. Finally, be sure to get an estimate on the interest rate and payment you’d have on your new mortgage before putting your home on the market.
Inquire about removing Private Mortgage Insurance (PMI)
If you put down less than 20% of your home’s value at the time of purchase, you likely pay toward private mortgage insurance with each payment. These payments will last until your loan to value equals 78%. However, if the home’s value spikes, that time can come sooner than expected. Contact a SouthPoint Home Mortgage loan officer to learn more.
Reassess your insurance coverage
If you don’t plan on selling your home, you may want to review your insurance coverage. Because your policy was likely purchased when your home was worth less than it is now, it may not cover the current value of your home. Consequently, it may be time to consider increasing your coverage at this time.
Take equity out
Another common financial move you might make to leverage your equity can include a Home Equity Adjustable Rate Loan or a Home Equity Line of Credit (HELOC). A HELOC is a line of credit that allows the homeowner to take out cash as needed over a “draw period,” after which the funds are repaid over a predetermined time.
You can also tap into your home’s equity through a cash-out refinance. This works by taking out a new mortgage, paying off the existing loan and keeping the difference in cash.