My House Skyrocketed in Value. Now What?
Q: My house has boomed in value. How can I take advantage of that increased equity?
A: The flaming real estate market means homes are rising in value at a meteoric rate. We’ve outlined several financial moves you may want to consider as a result.
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.
2. Have your home appraised to remove mortgage insurance
If you put down less than 20% of your home’s value at the time of purchase, you likely pay toward private mortgage insurance, or PMI, with each payment. These payments will last until you own 20% of the home. However, if the home’s value spikes, that time can come sooner than expected. Get your home professionally appraised to know if you own 20% or more. If you do, let your lender know so you’ll no longer need to pay the PMI.
3. 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.
4. Take equity out
Another common financial move you might make to leverage your equity can include a Home Equity Line of Credit (HELOC) or a Home Equity Loan (HEL). 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. A HEL is a lump sum of money the homeowner can borrow and then pay back over the loan’s term. Each of these products uses the home’s equity value as collateral.
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.
If you’re looking to take out a Home Equity Loan, click here.