Am I Rich in Home Equity? It’s Possible — Even If Prices Are Cooling

What does it mean to be ‘rich in home equity’?

As a homeowner, you may be surprised by how much home equity you’ve accumulated since you closed.

Home equity is the difference between your home’s current market value and how much you still owe on your mortgage. Home values rise over time, and your mortgage balance decreases with each payment. Meanwhile, you might be building significant equity without ever even thinking about it.

Being rich in home equity is a powerful financial tool. That value doesn’t have to stay tied up in your home, and you don’t have to sell the property (or refinance) to access those funds. You may be able to tap your equity to pay down debts, fund home improvement projects, use it for your kid’s college fund or even take your family on a dream vacation.

Here’s what you need to know if you’re thinking about using your home equity to make your goals a reality.

How to check your home equity (without listing your home)

Checking on your home equity isn’t complicated. In fact, it only takes three simple steps. The good news? You don’t have to list your home to calculate it.

Step 1: Determine your home’s current market value

First, get a ballpark idea of how much your home is currently worth. Chances are, your home’s value has changed since you purchased it. You can check the recent sale prices of similar homes in your neighborhood as a starting point. However, the best way to gauge your property’s market value is to connect with a professional or use an accurate online calculator.

Try our home equity calculator to find out how much your home could be worth in today’s market. All it takes is your address!

Step 2: Find your mortgage balance

Next, take a look at your last mortgage statement. Check out the remaining principal on your loan to see how much you still owe. You can also ask your lender directly.

If you have any other debts secured by your home, such as a Home Equity Line of Credit (HELOC) or a home equity loan, add that to the remaining mortgage balance.

Step 3: Calculate your home equity

Last, subtract your mortgage balance from your home’s estimated market value. And that’s it! The sum is the amount of home equity you have accumulated.

The home equity formula is: Current market value - mortgage balance = home equity

For example, let’s say you owe $150,000 on your mortgage and your home’s estimated value is $350,000. In this case, your home equity is $200,000.

You may have more equity than you realize

Many homeowners underestimate how much wealth they’ve built since purchasing their home. Since 2001, home values have appreciated by about 4.5% each year, with some areas seeing faster price growth. Paired with years of mortgage payments, your equity may have grown significantly without you even thinking about it.

If you haven’t checked your home’s value in a while, now’s a good time to see where things stand. That appreciation could translate into a substantial amount of home equity.

How much home equity do you need to borrow against it?

There’s no one-size-fits-all answer. While homeowners need to maintain a certain amount of equity before they can borrow against it, requirements vary across both lenders and loan programs. Other factors, such as income, credit history and existing debts, also come into play.

If you’re curious about leveraging your equity, get in touch with a professional. Our loan experts can help you lay out all of your options and map out a plan that fits your financial goals.

Two smart ways to use your home equity without refinancing

Tapping into home equity can give you access to money when you need it most. Here’s what you can do — without refinancing:

1. Home Equity Line of Credit (HELOC)

A home equity line of credit gives you flexible access to funds based on your equity. Instead of receiving a single lump sum, homeowners can borrow what they need, when they need it. Similar to a credit card, you can borrow up to an approved credit limit. But unlike credit cards, HELOCs typically have a lower interest rate.

2. Home equity loan

On the other hand, a home equity loan gives you cash upfront in a single payment. Home equity loans use the property as collateral, but otherwise they’re similar to traditional loans. You pay it back in fixed monthly installments over a set period of time, at a fixed rate based on current mortgage rates.

How do homeowners use these funds?

From fixing a leaky roof to covering education costs or consolidating debts, you can tap into equity for a variety of reasons. However, many homeowners use the funds to invest in their property. Repairs and upgrades may further increase your property value while improving your day-to-day experience.

So, if you’ve been thinking about adding a home office or tackling a remodeling project you’ve been putting off, your equity may be able to help.

Why now might be the right time to tap into home equity

Tapping into home equity is often more attractive than refinancing, especially if today’s interest rates are higher than your current loan’s rate. As a result, a HELOC or a home equity loan may be worth considering. Both options are great ways to leverage your equity without making major changes to your mortgage. You can access the funds you need without losing your low interest rate.

Interested in learning more about a Rate HELOC and how it could help you reach your financial goals? Find your rate now!

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply. 

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