Many homeowners looking to sell feel like they’re stuck between a rock and a hard place right now. Today’s mortgage rates are higher than the one they currently have on their home, making it harder to want to sell and make a move. Maybe you’re in the same boat. But what if there was a way to offset these higher borrowing costs? There is. And the money you need probably already exists in your current home in the form of equity.
What Is Equity?
Think of equity as a simple math equation. Freddie Mac explains:
". . . your home’s equity is the difference between how much your home is worth and how much you owe on your mortgage."
Your equity grows as you pay down your loan over time and as home prices climb. Thanks to the rapid home price appreciation we saw in recent years, you probably have a whole lot more of it than you realize.
Recent data from the Census and ATTOM shows more than two out of three homeowners have either completely paid off their mortgages or have at least 50% equity:
That means the majority of homeowners have a game-changing amount of equity right now.
How Your Equity Can Help You Move
When you sell your home, you can use your equity to manage the cost of buying your next home, even with today’s higher mortgage rates. Danielle Hale, Chief Economist for Realtor.com, explains:
“A consideration today’s homeowners should review is what their home equity picture looks like. With the typical home listing price up 40% from just five years ago, many home sellers are sitting on a healthy equity cushion. This means they are likely to walk away from a home sale with proceeds that they can use to offset the amount of borrowing needed for their next home purchase.”
Here’s how you can use your equity to your advantage:
Be an All-Cash Buyer
If you’ve built up significant equity, you might be able to buy your next home outright with cash, avoiding the need for a new mortgage altogether.
Make a Larger Down Payment
Using your equity for a larger down payment can reduce the amount you need to borrow, which can help mitigate the impact of higher mortgage rates.
Determine Your Home's Equity
To find out how much equity you have, you need to know:
Your current mortgage balance (found on your latest mortgage statement)
The current market value of your home
You can get an appraisal to determine your home’s value, or you can contact a local real estate agent for a professional equity assessment report (PEAR), often provided at no charge.
By working with a trusted real estate agent, you can accurately calculate your equity and understand how it can facilitate your next move.
Bottom Line
Higher mortgage rates don’t have to keep you from moving. By leveraging your home’s equity, you can offset higher borrowing costs and make your next home purchase more affordable. Connect with a local real estate professional today to explore how your equity can help you achieve your homebuying goals.
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