Homeowners look to tap record-high equity

The amount of tappable home equity again hit record highs in June, coming in at $11.5 trillion nationally, according to the August 2024 ICE Mortgage Monitor. That breaks down to more than 32 million homeowners with at least $100,000 in accessible equity in their home.

“Tappable” home equity is the amount of equity a mortgage holder can use for a loan while still retaining a 20% “cushion” that they’re not touching. Andy Walden, ICE vice president of research and analysis, attributed the record levels of tappable equity to rising home prices, which he said have “continued to build the fortunes of existing homeowners.”

Falling interest rates also make now a good time to use home equity to pay for a home repair or a child’s college tuition—or to do anything else you may have put off when rates were higher, experts noted.

“Many areas have experienced significant home value appreciation over these past few years, providing more equity for homeowners to access,” said Ryan Bennett, a regional manager with BOK Financial Mortgage®. “In many cases, homeowners may have more equity than they realize. After recent Fed announcements, rates have begun to move lower, which makes borrowing against home equity more affordable.”

“Plus, when interest rates move lower, mortgages become more affordable, which increases demand for homes and potentially drives up prices—and the value of home equity,” he said.

Equity options
Before you embark on the journey of tapping into your home equity, experts recommend working with a mortgage advisor to understand how much home equity you have and the differences between the types of home equity options:

• Home equity line of credit. HELOCs give you access to a line of credit you can tap into as needed for a set duration of time called a draw period. HELOC interest rates are variable, meaning you may see increases or decreases over time and the line of credit will show up on your credit report.
• Cash-out refinance. This option replaces your mortgage with a new one. You use the loan to repay the original mortgage, and the remaining cash is yours to do with as you please.

Making the right decision
If you’re unsure about the timing and/or use of your available equity, such as deciding between paying down debt, planning a dream wedding or remodeling your basement, the flexibility of a HELOC may be better for your situation, Bennett said. “Every situation is unique. I recommend speaking with a lender to review your needs before making a decision on which option works best for your situation.”

Your home equity can be used to cover just about anything. Bennett has seen clients access their equity to build an emergency fund, pay off high-interest credit card debt, pay for educational expenses at a lower rate than a student loan or even to supplement retirement accounts.

"If you need to finance a large purchase, it’s best to find the lowest interest rate possible, which is often by accessing your home equity," explained Bennett. “Accessing your home equity is one of the most flexible financial options you may have.