How much money is in your home?
How much cash do you have sitting in your home?
The average homeowner has close to $300,000 in home equity according to this report.
What exactly is “equity”?
If you have a mortgage on your home, every time you make a monthly payment, you are paying into the “equity” you have in your property – also known as your ownership stake in the home.
As you pay down your mortgage or as the value of your home increases, your equity grows, giving you a valuable asset that you can leverage through options like a home equity loan or line of credit.
Without a loan, the equity in your home isn’t liquid, meaning it’s tied up in your property rather than being immediately available as cash.
That said, if you need money for a major expense (think home repairs and improvements, weddings, travel, college, etc.) you do have the option to turn some of that equity into cash by applying for a home equity loan or line with a credit union or bank.
The growth of home equity loans
Right now, home equity loans and HELOCS are a popular way to pay for big ticket items -- especially because equity has grown in recent years due to a variety of economic factors. Specifically, U.S. home owners with mortgages have seen their equity grow by $1.3 trillion since the end of 2022, gaining 8.6% year over year according to the CoreLogic Homeowner Equity Insights report.
To access that money, consumers typically choose a home equity loan or HELOC.
What’s the difference?
To put it simply, a home equity loan is a fixed-rate loan product. You apply for the loan at a fixed interest rate and, if approved, you get a lump sum of cash you can use right away for your projects or expenses, paying it back over time in the same way you would a car loan or a mortgage.
A HELOC is more like a credit card. You apply for a “line of credit” with a variable rate. You can use as much or as little as you want of that line, up to the credit limit. The difference between HELOCs and credit cards is that if you have equity in your home and qualify for a HELOC, you will likely pay a lower interest rate than you would with a regular credit card, making it a more affordable way to borrow a larger amount of money.
Why a HELOC?
In this blog post, we’ll break down the benefits of HELOCs in particular.
HELOCs are a great tool for the following reasons:
- Flexibility: With a HELOC, you can access funds as needed, similar to a credit card.
- Lower Interest Rates: HELOC rates are often lower compared to other forms of credit, making it an affordable option for various financial needs.
- Accessibility: HELOCs offer a very convenient way to access funds secured by your home equity without the need to sell the property.
- Versatility: HELOCs can be used for various purposes, such as home renovations, education expenses, emergency funds, or debt consolidation.
- Tax Benefits: There may be tax benefits associated with the interest paid on a HELOC, depending on your specific financial situation and local tax laws. (Please consult a tax professional for guidance).
- Peace of Mind: Having a HELOC in place can provide peace of mind in case of unexpected expenses or opportunities, offering a financial safety net.
- Financial Empowerment: The HELOC is a tool of financial empowerment, enabling you to take control of your finances to achieve short and long-term goals.
How to calculate your HELOC buying power
So how much money is in your home exactly and what is available to cash out with a HELOC?
To calculate your potential home equity available for a HELOC, first determine the maximum amount of loan your lender would approve based on your home's value.
For example, let’s say your home is valued at roughly $300,000 according to a site like Redfin or Zillow. If you currently owe your lender half of that, or $150,000, here’s how you would figure out your drawable equity at an 80% loan to value (LTV)*:
To calculate your LTV at 80%, you would first multiply $300,000 x 0.8 = $240,000
Next, subtract the amount you still owe on your mortgage from the maximum loan amount: $240,000 (maximum loan amount) - $150,000 (current loan balance) = $90,000
So, if you're looking to get a HELOC with an 80% loan-to-value ratio, you potentially have $90,000 in home equity available to borrow against.
Want more?
Use the HELOC calculator linked on our Home Equity Loan page. From that page, you can get more questions answered about CAFCU’s home equity loan products and apply online.
Additional resources
- Learn more about CAFCU’s home equity loans
- View CAFCU’s current rates
- Take advantage of our current offers