The average mortgage holder has just as much equity. How are you doing?

Are you sitting on a pile of equity?

Key points

• Rising house prices have led to an increase in home equity.
• Mortgage holders have an average of about $185,000 in home equity.
• There are ways to use the equity in your home to your advantage.

Since 2021, would-be home buyers have been grappling with record house prices — and struggling to break into the housing market because of them. But while higher home prices are a bad thing for buyers, they’re a good thing for homeowners. Existing owners can benefit from a high level of equity, even if they have no intention of selling.

What is home equity?

You may often hear the term “home equity” and it refers to the part of your home that you own without a mortgage. If you have a home worth $300,000 with a mortgage balance of $200,000, that means you have $100,000 in equity.

Home equity is on the rise

Since home values ​​are so high these days, home equity levels have increased nationally. According to data firm Black Knight, the average mortgage holder now has about $185,000 in home equity.

That said, you may be sitting on more or less equity, depending on the property you own and your mortgage balance. If you live in a first home, for example, you may be considering less equity. Likewise, if you recently purchased a home and haven’t put down a very large down payment, you may have limited equity in your property.

But as we just learned, determining the equity in your home is quite easy. All you really have to do is figure out its current market value (which you can find by looking at sites like Zillow or talking to a local real estate agent), subtract the amount you owe on your mortgage, and voila played – you I have your number.

What to do with the equity in your home

Once you have determined the equity in your property, the big question is what to do with it. And to be clear, “nothing” is a perfectly acceptable answer.

Just because you have good equity in your home doesn’t mean you have to show it off. If you don’t tap into that equity, you may end up making a bigger profit when it comes time to sell your home.

But if you are in need of cash, there are several options you can exercise to tap into your home equity. For one, you can borrow against it through a home equity loan or a line of credit (HELOC). Both options allow you to borrow money for any purpose – it doesn’t have to be house-bound.

For example, if you have a large amount of credit card debt hanging over your head and you are paying 18% interest, you might be able to get a home loan with an interest rate between 5% and 7 %. This could make your debt much easier to pay off.

You can also consider a cash-out refinance, which allows you to trade in your existing mortgage for a larger loan and use that excess money as you see fit. Going back to our example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you might decide to refinance for $240,000. Of that, $200,000 would go toward paying off your original mortgage, and you’d get the remaining $40,000 in cash to use as you see fit.

Borrowing against your home’s equity can be tempting, but be careful when doing it. If you fall behind on your loan repayments, you risk losing your home.

Enjoy while you can

Right now, home equity levels are higher than they have been in a long time. Once home prices start to fall, equity levels could decline, so if you’ve been thinking about tapping into your home equity to renovate, repair your home, or pay off more expensive debt, now might be the time. to have come to move. Once home equity levels decline, you may have less leeway to borrow.

Additionally, we don’t know if interest rates on home loans, HELOCs, and refinances will climb in 2022. Rates are pretty competitive right now though, which is another reason to consider leveraging your real estate capital as soon as possible.