Homeowners gained an average of $55,300 per borrower in 2021, a collective gain of more than $3.2 trillion in equity gains for the year, according to CoreLogic’s fourth-quarter Homeowner Equity Report.
Equity grew for homeowners with a mortgage — about 63% of all homeowners — by 29.3% annually in the fourth quarter of 2021, the report showed. This was because home prices rose at record rates throughout the year. In particular, Hawaii, California and Washington saw the highest average equity gains, the report indicated. In contrast, North Dakota and Washington, D.C. saw the lowest.
"Home prices rose 18% during 2021 in the CoreLogic Home Price Index, the largest annual gain recorded in its 45-year history, generating a big increase in home equity wealth," CoreLogic Chief Economist Frank Nothaft said. "For low- and moderate-income homeowners, home equity has historically been a major source of wealth."
If you want to take advantage of your increased equity, consider taking out a cash-out refinance. Visit Credible to find your personalized interest rate without affecting your credit score.
Rising prices means less risk for homeowners
Homeowners are experiencing less risk in the housing market as prices go up. That’s because negative equity, in which a homeowner owes more on their house than it's worth, dropped 3% to 1.1 million homes, according to CoreLogic's report. This decrease was aided by the home price appreciation seen in Q4 2021, and represented a 12-year low.
For comparison, 1.5 million homes were in negative equity in the fourth quarter of 2020, nearly a quarter (24.9%) more than in 2021. Borrowers can move out of negative equity when they pay off more of their home, or when the value of their home increases.
Negative equity can also be known as an "underwater" mortgage or "upside-down." Although the majority of lenders won't refinance a home with negative equity, consumers could consider refinancing their mortgage to get back on track.
How homeowners can access the cash in their home
Homeowners can take advantage of home price appreciation and have several options available to them in order to tap into their rising equity. This can be used to pay down high-interest credit card debt, fund home improvement projects and more.
One way to tap into your home’s equity is by selling it. Amid the current competitive housing market, sellers could walk away with a profit that could possibly pay for a new home's down payment, with some money left over. Mortgage giant Fannie Mae's Economic and Strategic Research Group predicts a higher-than-average home price jump of 7.6% this year amid surging inflation. It added that buyers could struggle with affordability challenges, along with high demand and inventory shortages.
Another option for homeowners that don’t want to move or buy a new home amid higher levels of competition is refinancing. Homeowners who take out a cash-out refinance can pull money out of their home and perhaps even lower their monthly payment with a new, lower interest rate. Currently, interest rates are averaging just below 4% annual percentage rate (APR), according to data from Freddie Mac.
Homeowners can also take out a home equity line of credit (HELOC). This acts as a second lien on a house, and opens a new loan against the appraised value of your home. Home equity loans are separate from your current loan, and can come in various loan amounts based on a home’s value.
If you want to see the best way to tap into your home equity for home improvements or to see how much equity you could have, contact Credible to speak to a mortgage loan expert and get all of your questions answered.
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