Tapping Home Equity: Know Your Options
Homeowners across the U.S. hold $11T in tappable equity. Experts urge caution and understanding of loans, HELOCs and other options before borrowing against it.
NEW YORK – The ICE Mortgage Monitor reports that at the start of the year, households have $35 trillion in equity, and of those with a mortgage, $11 trillion in "tappable equity" is available for borrowing, which leaves a 20% equity buffer in the home.
Home equity loans, reverse mortgages and other financial products are available to help homeowners tap into that equity for renovation projects, debt payoffs, college tuition payments and other expenses, but many homeowners need to know the pros and cons of each before tapping those products.
Noelle Melton, vice president of national homeownership programs and lending at the national nonprofit NeighborWorks America, said, "People don't often view themselves as having assets. They're focused on figuring out how to put pieces together to make ends meet. But everyone can benefit from having an unbiased guide to advise them on the bigger picture of how this impacts their long-term financial health."
Home equity loans provide a lump-sum payment, some with a fixed interest rate, that must be repaid over a certain number of years, while home equity lines of credit (HELOCs) set out a certain maximum amount you can borrow, pay back and borrow again, but these have floating interest rates. Bankrate reports that HELOCs also have higher interest rates, hovering in the mid-8% range as of mid-May.
Cash-out refinances enable owners to take out new mortgage that is higher than what is currently owed, providing the owner with cash. Rates on cash-out refinancings are in the high-6% range.
Reverse mortgages, which are available only to homeowners over 62, is when the lender pays the homeowner a certain amount either every month or as a one-time lump sum. Reverse mortgages often have extensive fees, and some homeowners may outlive the cash they receive and have no equity left in their home when they need it. Additionally, borrowers need strong credit profiles and have the ability to take on more debt, and many are reluctant to tap home equity because their current mortgages have a 4% or lower rate.
Jeff Glass, founder of Hometap, says companies are offering "home equity investments" or "home equity sharing agreements" in which they give cash to an owner for a stake in the home, and when the property is sold or the investment is repaid to the company, the homeowner effectively pays back the cash initially received, plus a percentage of the home's appreciated value and some fees.
Homeowners should be careful when deciding on options and make sure they understand the investment terms, according to consumer experts.
Source: USA Today (05/15/25) Riquier, Andrea