The most valuable holiday gift given last year doesn’t fit underneath homeowners’ trees, although it’s a gift that keeps on giving—an increase in home equity.
A recent CoreLogic® analysis showed that approx. 63% of all U.S. homeowners with mortgages saw their equity increase by a total of $227 billion in the third quarter of 2016 compared with the previous quarter, an increase of 3.1%. Year over year, home equity grew by $726 billion, representing an increase of 10.8% in the third quarter of 2016 compared to that of 2015.
Additionally, 384,000 borrowers moved out of negative equity, increasing the percentage of homes with positive equity to 93.7% of all mortgaged properties, or approximately 47.9 million homes. You’ve probably heard of homes that are “underwater” or “upside down,” which are terms referring to negative equity. Essentially, negative equity means that borrowers owe more on their mortgages than the market value of their homes. It occurs when there is a decline in home values or an increase in mortgage debt, or sometimes, can be a combination of both factors.
New quarterly data released by the Federal Reserve revealed that American homeowners’ equity grew by $1.02 trillion in the 12-month period ending Sept. 30. According to analytics and valuation performed by CoreLogic®, this means that the average homeowner saw a $12,500 gain in equity last year!
If you own a home, you’re probably wondering how your house fared. Without monitoring the listings and sales in your neighborhood, you may have missed an increase in your home’s equity. Fortunately, because competition for NYC properties is still fierce compared to most other U.S. markets—which results in tight inventories, and given the relatively lower interest rates, odds are that your home’s equity increased. The total number of mortgage refinancings—especially into loan types with shorter terms, coupled with reduction in mortgage principal debts through normal amortization, also played a role in the increase of home equity. If you completed any major renovations, it is highly likely that the equity in your home increased.
While it’s best to contact a reputable mortgage loan officer to help you determine your home’s equity, refer to your current mortgage statement for the unpaid balance. Then visit online resources such as Redfin.com or realtor.com to review local sales trends and see the list prices of current listings of properties that are similar to yours. Simply type in an address and peruse the list prices of the search results. It may behoove you to spend approx. $400 for a home appraisal to procure an expert opinion.
Once you’ve determined your home’s equity, it’s time to decide if you should cash in on it. Many homeowners choose a cash-out refinance for home improvements, debt consolidation or college expenses. If you plan to stay in your home and its equity has increased significantly since you first purchased it, consider doing a cash-out refinance. In some cases, homeowners are able to secure a HELOC—Home Equity Line of Credit, however these are usually taken out in addition to the existing first mortgage when homes are originally purchased.