Homeowner’s gained $250 billion in tappable equity in the third quarter of 2021, surging past previous record highs, according to the latest Mortgage Monitor report from Black Knight. This comes as home price growth slowed over August, September and October.
Tappable equity is the amount of money homeowners can take out of their homes while maintaining at least 20% equity.
"Home price growth in the third quarter – while less than half that of Q2’s history-making rate – added more than $250 billion to Americans’ already record levels of tappable equity," Ben Graboske, Black Knight president of data and analytics, said. "The aggregate total of $9.4 trillion is up an astonishing 32% from the same time last year and nearly 90% higher than the pre-Great Recession peak in 2006.
"As prices have surged over the past 18 months, the average mortgage holder’s equity stake has risen by $53,000," Graboske said. "That works out to nearly $178,000 available in tappable equity to the average homeowner with a mortgage before hitting a maximum combined loan-to-value ratio of 80%."
With homeowners now holding more tappable equity in their home, they can access this money through a cash-out refinance. Visit Credible to compare your refinance options and find your personalized interest rate for a new mortgage.
Getting a cash-out refinance is safer than ever
During the third quarter, borrowers pulled equity out of their homes through cash-out refinances at the highest rate in more than 14 years, according to Black Knight’s report. However, it also said there is no cause for concern that homeowners are using their homes as ATMs.
More than $70 billion in equity was taken out using cash-out refis in the third quarter, which equates to just 0.8% of the available equity going into the quarter, according to Black Knight. Comparably, this is less than one-third of the rate that people withdrew cash from their homes at the peak of this activity in 2005.
The report explained that the safety of cash-out refinances has gone up as underwriting standards are now much stronger and the average credit scores of cash-out refinance borrowers are 50 points higher than those in 2005.
"The average borrower’s mortgage debt is now just 45.2% of their home’s value – the lowest total market leverage we’ve ever recorded, going back to at least the turn of the century," Black Knight said.
If you want to take advantage of your home’s equity, consider taking out a cash-out refinance. You can use the loan amount to pay for home improvements or pay off high-interest debt. Check out Credible to compare refinance options from multiple lenders at once and see which one has the best mortgage rate for you.
As home prices rise, affordability becomes a concern
As home prices rise, the housing market is becoming much less affordable. The monthly out-of-pocket payment required to buy an average-priced home with a 20% down payment and a 30-year fixed-rate mortgage increased by 24%, or $260 since the beginning of this year, to $1,346, according to Black Knight.
For a median-priced home, it now takes 22.4% of the median household income to make the monthly mortgage payment. This is up from 18.1% at the beginning of 2021, the report showed. But this affordability level is still significantly better than in 2006 when more than 34% of income was needed. Now, rising home values and interest rates will continue to push affordability lower.
If you are paying too much for your mortgage, consider refinancing to reduce your interest rate and lower your monthly payment. Contact Credible to speak to a mortgage loan expert and get all of your questions answered.
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