Why You Should Use Your Home Equity Before House Prices Fall

When house prices fall, you have less equity to withdraw.

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If you have considered tap into the equity in your home, maybe now is the time to do it. National home values ​​have been rising steadily for more than a decade. As a result, many homeowners find themselves sitting on a sizable net worth. This may not be the case for a very long time.

Economists and housing experts expect house prices to fall 1.6% in 2023, according to a recent Zillow Survey of House Price Expectations economists and housing experts. With that in mind, here’s why you might want to use the equity in your home now before your home’s value drops.

Start by exploring your home equity options here now..

Why You Should Use Your Home’s Equity Before Prices Drop

Lenders usually allow you to borrow 80% to 85% of the equity in your home. How much equity you have in your home is calculated by subtracting your outstanding mortgage balance from the current market value of your home.

For example, let’s say your original mortgage balance was $400,000. Over time, you made mortgage payments of $100,000, which brought the balance down to $300,000. During this time, your house has appreciated by $500,000. This means that the equity in your home would be $200,000 ($500,000 minus $300,000).

Now let’s say you decide to wait several years to withdraw your capital. During this time, the value of your home goes from $500,000 to $450,000. In this case, the equity in your home is only $150,000 ($450,000 minus $300,000).

In other words, when house prices fall, you have less equity to withdraw. If you’re thinking of pulling the trigger on a home equity loan Or HELOCyou’ll get more out of your equity by doing it before your home’s value drops.

See current home equity rates to find out how much you could borrow.

Other Considerations

In addition to get the most equity away from home, you can also maximize your return on investment. One of the best ways to use equity is to make home improvements. If you use your funds for IRS-approved repairs and improvements, you may be able to deduct the interest.

“Interest on home equity loans and lines of credit are only deductible if the borrowed funds are used to purchase, build or substantially improve the home of the taxpayer who is securing the loan,” the statement said. IRS said. “The loan must be secured by the taxpayer’s primary or secondary residence (qualified residence) and meet other requirements.”

In addition, these improvements can increase the value of your homeallowing you to resell it for more in the future, regardless of the state of the real estate market.

The bottom line

The equity in your home can be a great way to finance a major purchase or create wealth for the future. Taking advantage of that equity when home values ​​are high can help you get more money than you could in the near future. While house prices are expected to fall in the second half, it’s the perfect time to review your home equity options.

Ready to get a home equity loan or HELOC? Start by reviewing your options here.

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