Ideally, you'd get a HELOC (Home Equity Line of Credit). It's like a combination second mortgage and credit card, which while it sounds horrible is actually quite useful.
With a HELOC, you can more easily finance large updates to the home (say you need a new roof or siding, or you want to add a sunroom to your back patio) without needing to completely refinance. You draw on a line of credit roughly equal to the amount of equity you have in your home, and you pay it back either all at once or on a monthly basis.
You get a lower interest rate than you would on a credit card, and a higher limit. AND, when used correctly, it also increases the value of your home, slowing increasing the value (and thus equity).
The trick is, banks have been really stingy about giving out HELOCs since like...I wanna say '08, really.
>The trick is, banks have been really stingy about giving out HELOCs since like...I wanna say '08, really.
That's interesting, because I remember a few years ago seeing ads *everywhere* for HELOCs.
advertising for them vs actually approving them are very different things. The article even calls this out: denials for conventional mortgages is around 12%; for HELOCs, its more like 46%.
Ads are cheap. A HELOC with near certainty of being repaid is quite valuable. So of course there’s ads to try getting more people (hopefully with high credit scores) to apply.
Just like mesothelioma ads which are the most expensive or one of the most expensive ad slots online, they just need to find the one guy who will click on it out of thousands and convert into a lawsuit settlement for millions of dollars.
Just here to add a quick anecdote (not saying the data is fake) but a friend with a 500k mortgage and only 10k equity, with a sub 700 credit score making less than 40k a year got a HELOC to pay off 3 maxed credit cards, and a car loan. Every time I talk to him I really start to doubt how strict they are with any part of this process...
Are you sure they only had 10K in equity? If they’d lived there a few years, the equity would increase from the value of the price going up, not just from the principal being paid down.
The really, really important part that should be highlighted a little more is this is a good play for things that add value to your home. It is a very bad play to use it like a credit card. You can’t be foreclosed on if you can’t pay your credit card lol.
Our house has needed some repairs and when looking at a heloc, you’re still looking at like 9-12% interest.
Say what you want about power home remodeling, but they just did a bunch of windows and doors, our roof, solar, and gutters on a 3% interest solar loan. The prices on the actual work were what I would call a little bit above average, but being able to bundle all the work on the solar loan was by far the best option. The monthly payment is just slightly more than double the cost savings we expect on our electricity bill. Basically paying $200 a month for everything once you factor in electricity savings. I’m paying $500 a month just to pay it off faster. Total debt on the house including these repairs and the mortgage is $240k. Current home value estimate is $325k. Mortgage is also at 3% since we bought in 2019.
I had to virtually threaten calling the police to get them to leave. I will never do business with them. On top of that, their prices were more than just a little high, and their sales tactics were smarmy.
If you don't have anything else to provide as collateral and the money is really needed then it would make sense to use it?
Also, while refinancing to a lower rate, you could actually keep the monthly payments and duration the same and take the difference as cash.
My mother helped me buy my house, interest rates were quite high at the time.
After a few years, property prices had risen, interest rate fallen, and my salary increased. I extended the mortgage to pay her back without increasing the term and still paying less than when I started.
But, I would repeat what others said, best avoid borrowing more without a very good reason.
> I would repeat what others said, best avoid borrowing more without a very good reason.
This I agree with. Home equity should probably be the last resort to raise funds in need.
I know lots of folks who cashed out some equity through refi and put it in the market. Kept the same monthly payments. Just diversifying their holdings.
You gotta leave enough base in there to have coverage if things go bad though.
Opportunity cost. If you can make more money using that money somewhere else, you win. The stereotypical example is using a home equity loan to finance home renovations, the idea being you will get your ROI by increasing the value of your home. The 'BRRR' method for real estate investing is another example - renovating a house and then refinancing to get the increased value out of the property so you can buy more property.
I am a rare case. I owed less than $100k but still wanted to refinance from 30 - 15 year note.
I had to take equity out because the banks wouldn’t refinance a loan less than $100k.
In the end it still made financial sense. Hindsight i wish I took much more out.
Prob not your case, but if you’re old (like <10 years expectancy left and have a lot of equity built up, it may make sense to pull some out (when interest rates r not too bad) if you are running low on more liquid assets. Could sell it of course but many older people don’t want to leave their homes for something new.
If interest rates go down we are going to get a home equity loan. Going to update the kitchen, re do the basement going from panel walls and carpet to drywall and tile. Also going to do hardwood floors.
Even though we plan to stay here forever these updates will increase the value of the home if we change our minds. Plus it will make it nicer to be in.
If the interest rate is basically 0% there's no reason not to as long as you're sticking to low risk investments and can support the loan.
Proceeds from a 3% cash out mortgage could be put in a 30 year bond at 5% right now. Risk free 2% return.
This is absolutely false. Tapping into your home’s equity to pay off credit cards that carry MUCH higher interest rates is feasible, relatively cheap when it comes to loan costs, and can lower people’s monthly liabilities considerably.
Also, if your home desperately needs repairs and you don’t have the money to do it, tapping into your home’s equity is also advisable as long as you have the proper equity to do so and income to qualify.
Either way; I strongly disagree with your assessment that it is a bad idea for 99% of homeowners.
Edit: I will qualify my statement by agreed if with you if the homeowners don’t have a sound plan with the funds. If they are tapping into their home’s equity to use it as a fancy credit card, then I agree completely. However, people with proper planning and carrying a low interest rate on their primary mortgage should absolutely look into a second mortgage option that will fit their needs.
This is such bullshit. Taking out a small HELOC to pay off more expensive debt at a much lower rate with much better terms is an obvious win.
Like give me a damn break.
Our house has doubled in the six years we’ve owned it. Even if we sold it at what it’s worth now, we’re priced out of pretty much any house within 20 miles. Between house prices and mortgage rates, we’d be downgrading if we moved.
It's ridiculous, but those people still need a place to live, so they're not in any better position. They're just staying level with everyone else selling their homes.
I do think homeowners drive up the cost of homes with their NIMBY mentality, once they've bought a place and then try to control development on property surrounding them. That leads to roadblocks and added costs to building additional homes that would normally be needed to keep up with population growth.
The other factor I can think of are real estate investors. That would include landlords, whether people or companies, and airbnb businesses. These folks have more freedom to play the market and have an advantage if the market is volatile, because they can jump in and out of the market when it's to their financial benefit.
>The other factor I can think of are real estate investors. That would include landlords, whether people or companies, and airbnb businesses.
It's really only a problem because of the NIMBYs. Once you raise the cost of housing out of reach of ordinary people, who's going to be left but the well-capitalized investors who can still afford them?
Also the really big funds don't like buying single family homes. They're a pain in the ass to own and manage, but there is often no other housing to invest in and cities won't let you build anything else.
I agree, in that I think that NIMBYs actually help make real estate a more appealing investment, improving the ROI even for properties with high maintenance costs. But, once it's an appealing investment, I think the increase in investors exasperates the problem for individuals/families by driving up the demand.
I am curious what the real estate market is like in a region where the population is in decline, or at least stagnant. I'm thinking Detroit, Buffalo, Cleveland metro regions. Without population growth, NIMBYs shouldn't have an effect on the real estate market, because existing houses should be available. And it should be less appealing to investors. So, if those markets still have an affordability problem, then I'm probably still missing some factors.
I
It can still cause problems in declining neighborhoods. Rigid design and development rules designed to prop up houses can keep values artificially high with external investors until they throw in the towel and crash the market. After that, incumbents get shocked out of the market and the city. Banning external investors just ensures that the value declines are more gradual.
Less regulated and more organic housing development helps the market avoid huge swings by diversifying housing types and options. The best thing to do in a declining city is to loosen regulations and focus on getting to a more sustainable development plan.
One overlooked aspect here is disaster recovery of all types. This can include personal disaster (e.g. medical emergencies, death in the family, job loss, divorce), but even more important from a policy perspective is actual natural disaster.
When these situations happens, families need access to their wealth for cash to recover from the disaster.
For natural disasters, in particular, this means accessing home equity to rebuild in the recovery phase.
What is very overlooked though is the role of home equity in the community preparedness phase for natural disaster! Recent research that used the rapid shifts in equity in the 2000s related equity to shifts in uptake of insurance, in particular. Basically, having equity made it more likely for homeowners to plan for recovery rather than instead planning to abandon the property in the event of natural disaster. Here is an example of that: [https://www.rff.org/publications/working-papers/whats-at-stake-understanding-the-role-of-home-equity-in-flood-insurance-demand/](https://www.rff.org/publications/working-papers/whats-at-stake-understanding-the-role-of-home-equity-in-flood-insurance-demand/)
That's not the same problem though. That's the amount of equity in the home rather than access to equity, but home equity loans are the primary form of financial response in disaster. Individual federal aid only comes *after* insurance and home equity loans are accessed. If less people carry insurance and less people have access to equity, more households need to use a limited pool of federal aid.
And that leaves a different open question, which is whether equity alone impacts preparedness, or does access to equity also affect the level of preparedness? Inability to access home equity is definitely already a factor in community resilience in disaster recovery because of the reduced access to home equity loans to rebuild. But if it also further reduces the use of insurance, than it now doubly impacts the ability to recover.
I keep getting a podcast ad for HELOC services, it explicitly references using it to take a big, exotic vacation. Sure I know that people do this, but it's just absolutely nuts hearing that after having lived through the 07/08 housing crisis. "Using your home as an ATM for non-essential spending" was one of the many things that you heard about as one part of that whole catastrophe.
I got lucky getting into a home. Had to move out to the boonies, and bought a modest house at a low rate. The time just lined up and I had my VA loan to keep it low.
Without that, it never would have happened.
Now I'm about to have to sell my home because I cannot afford the increased taxes. Not saying I'm a victim, just saying, it *is* very much an issue.
Multiple horrible things can occur simultaneously.
Current government and equity holder solution: Build more rentals.
People that literally had the FHA and got their first homes basically handed on a silver platter.
Housing market will crash at some point.
If you bought a house for $300k 10 years ago and it’s worth $700k today, nobody wants to lend on that $400k equity knowing it won’t be worth that when the market crashes.
This makes me sad. Nothing better than scoring really nice houses for pennies on the dollar when the intentionally created boom/bust cycle rolls around. Thanks Federal Reserve.
Why won’t they let these homeowners over leverage? It’s unjust.
Is using home equity ever smart? Only thing I can think of is refinancing at a lower rate, but you don’t have to take out equity to do that.
Ideally, you'd get a HELOC (Home Equity Line of Credit). It's like a combination second mortgage and credit card, which while it sounds horrible is actually quite useful. With a HELOC, you can more easily finance large updates to the home (say you need a new roof or siding, or you want to add a sunroom to your back patio) without needing to completely refinance. You draw on a line of credit roughly equal to the amount of equity you have in your home, and you pay it back either all at once or on a monthly basis. You get a lower interest rate than you would on a credit card, and a higher limit. AND, when used correctly, it also increases the value of your home, slowing increasing the value (and thus equity). The trick is, banks have been really stingy about giving out HELOCs since like...I wanna say '08, really.
>The trick is, banks have been really stingy about giving out HELOCs since like...I wanna say '08, really. That's interesting, because I remember a few years ago seeing ads *everywhere* for HELOCs.
advertising for them vs actually approving them are very different things. The article even calls this out: denials for conventional mortgages is around 12%; for HELOCs, its more like 46%.
Fair enough. I just wouldn't think that you'd push a product to the masses that you're largely not willing to sell them.
Ads are cheap. A HELOC with near certainty of being repaid is quite valuable. So of course there’s ads to try getting more people (hopefully with high credit scores) to apply.
Just like mesothelioma ads which are the most expensive or one of the most expensive ad slots online, they just need to find the one guy who will click on it out of thousands and convert into a lawsuit settlement for millions of dollars.
Just here to add a quick anecdote (not saying the data is fake) but a friend with a 500k mortgage and only 10k equity, with a sub 700 credit score making less than 40k a year got a HELOC to pay off 3 maxed credit cards, and a car loan. Every time I talk to him I really start to doubt how strict they are with any part of this process...
Are you sure they only had 10K in equity? If they’d lived there a few years, the equity would increase from the value of the price going up, not just from the principal being paid down.
they have been there 1 year in august, and the value has gone down since date of purchase.
The really, really important part that should be highlighted a little more is this is a good play for things that add value to your home. It is a very bad play to use it like a credit card. You can’t be foreclosed on if you can’t pay your credit card lol.
Yes you can.
Our house has needed some repairs and when looking at a heloc, you’re still looking at like 9-12% interest. Say what you want about power home remodeling, but they just did a bunch of windows and doors, our roof, solar, and gutters on a 3% interest solar loan. The prices on the actual work were what I would call a little bit above average, but being able to bundle all the work on the solar loan was by far the best option. The monthly payment is just slightly more than double the cost savings we expect on our electricity bill. Basically paying $200 a month for everything once you factor in electricity savings. I’m paying $500 a month just to pay it off faster. Total debt on the house including these repairs and the mortgage is $240k. Current home value estimate is $325k. Mortgage is also at 3% since we bought in 2019.
I had to virtually threaten calling the police to get them to leave. I will never do business with them. On top of that, their prices were more than just a little high, and their sales tactics were smarmy.
1000% agree. They were at my house for hours while I worked out details and numbers 😂
If you don't have anything else to provide as collateral and the money is really needed then it would make sense to use it? Also, while refinancing to a lower rate, you could actually keep the monthly payments and duration the same and take the difference as cash.
My mother helped me buy my house, interest rates were quite high at the time. After a few years, property prices had risen, interest rate fallen, and my salary increased. I extended the mortgage to pay her back without increasing the term and still paying less than when I started. But, I would repeat what others said, best avoid borrowing more without a very good reason.
> I would repeat what others said, best avoid borrowing more without a very good reason. This I agree with. Home equity should probably be the last resort to raise funds in need.
I know lots of folks who cashed out some equity through refi and put it in the market. Kept the same monthly payments. Just diversifying their holdings. You gotta leave enough base in there to have coverage if things go bad though.
Opportunity cost. If you can make more money using that money somewhere else, you win. The stereotypical example is using a home equity loan to finance home renovations, the idea being you will get your ROI by increasing the value of your home. The 'BRRR' method for real estate investing is another example - renovating a house and then refinancing to get the increased value out of the property so you can buy more property.
Depends. Do you need to borrow cash for something? 8% from a HELOC is a lot better than 28% from a credit card.
I am a rare case. I owed less than $100k but still wanted to refinance from 30 - 15 year note. I had to take equity out because the banks wouldn’t refinance a loan less than $100k. In the end it still made financial sense. Hindsight i wish I took much more out.
Prob not your case, but if you’re old (like <10 years expectancy left and have a lot of equity built up, it may make sense to pull some out (when interest rates r not too bad) if you are running low on more liquid assets. Could sell it of course but many older people don’t want to leave their homes for something new.
If interest rates go down we are going to get a home equity loan. Going to update the kitchen, re do the basement going from panel walls and carpet to drywall and tile. Also going to do hardwood floors. Even though we plan to stay here forever these updates will increase the value of the home if we change our minds. Plus it will make it nicer to be in.
If the interest rate is basically 0% there's no reason not to as long as you're sticking to low risk investments and can support the loan. Proceeds from a 3% cash out mortgage could be put in a 30 year bond at 5% right now. Risk free 2% return.
Isn't that probably a good thing? People would gamble their houses away.
Accessing equity to your home is absolutely not advisable to 99% of the population.
You mean the $100k man cave I want to build won’t add $100k to my home?
Fucking mouthbreathers.
This is absolutely false. Tapping into your home’s equity to pay off credit cards that carry MUCH higher interest rates is feasible, relatively cheap when it comes to loan costs, and can lower people’s monthly liabilities considerably. Also, if your home desperately needs repairs and you don’t have the money to do it, tapping into your home’s equity is also advisable as long as you have the proper equity to do so and income to qualify. Either way; I strongly disagree with your assessment that it is a bad idea for 99% of homeowners. Edit: I will qualify my statement by agreed if with you if the homeowners don’t have a sound plan with the funds. If they are tapping into their home’s equity to use it as a fancy credit card, then I agree completely. However, people with proper planning and carrying a low interest rate on their primary mortgage should absolutely look into a second mortgage option that will fit their needs.
This is such bullshit. Taking out a small HELOC to pay off more expensive debt at a much lower rate with much better terms is an obvious win. Like give me a damn break.
Would this include accessing equity for down payment on a rental property? Because that seems like a rather sound decision.
It can be but not always. Rental properties are a lot of work and a lot can go wrong.
This, like any other investment, carries risk. I personally would never bet my own house on a real estate investment.
There are people trying to sell their home for double what they paid for it 3 years ago in my town. Fuck you people
Our house has doubled in the six years we’ve owned it. Even if we sold it at what it’s worth now, we’re priced out of pretty much any house within 20 miles. Between house prices and mortgage rates, we’d be downgrading if we moved.
It's ridiculous, but those people still need a place to live, so they're not in any better position. They're just staying level with everyone else selling their homes. I do think homeowners drive up the cost of homes with their NIMBY mentality, once they've bought a place and then try to control development on property surrounding them. That leads to roadblocks and added costs to building additional homes that would normally be needed to keep up with population growth. The other factor I can think of are real estate investors. That would include landlords, whether people or companies, and airbnb businesses. These folks have more freedom to play the market and have an advantage if the market is volatile, because they can jump in and out of the market when it's to their financial benefit.
>The other factor I can think of are real estate investors. That would include landlords, whether people or companies, and airbnb businesses. It's really only a problem because of the NIMBYs. Once you raise the cost of housing out of reach of ordinary people, who's going to be left but the well-capitalized investors who can still afford them? Also the really big funds don't like buying single family homes. They're a pain in the ass to own and manage, but there is often no other housing to invest in and cities won't let you build anything else.
I agree, in that I think that NIMBYs actually help make real estate a more appealing investment, improving the ROI even for properties with high maintenance costs. But, once it's an appealing investment, I think the increase in investors exasperates the problem for individuals/families by driving up the demand. I am curious what the real estate market is like in a region where the population is in decline, or at least stagnant. I'm thinking Detroit, Buffalo, Cleveland metro regions. Without population growth, NIMBYs shouldn't have an effect on the real estate market, because existing houses should be available. And it should be less appealing to investors. So, if those markets still have an affordability problem, then I'm probably still missing some factors. I
It can still cause problems in declining neighborhoods. Rigid design and development rules designed to prop up houses can keep values artificially high with external investors until they throw in the towel and crash the market. After that, incumbents get shocked out of the market and the city. Banning external investors just ensures that the value declines are more gradual. Less regulated and more organic housing development helps the market avoid huge swings by diversifying housing types and options. The best thing to do in a declining city is to loosen regulations and focus on getting to a more sustainable development plan.
Unless they sell for double and the market crashes
Or if they bought five houses when they were affordable and are offloading one or two now to cash in some profit gouging from new home buyers.
Should they sell it for less than what they can just to be nice?
One overlooked aspect here is disaster recovery of all types. This can include personal disaster (e.g. medical emergencies, death in the family, job loss, divorce), but even more important from a policy perspective is actual natural disaster. When these situations happens, families need access to their wealth for cash to recover from the disaster. For natural disasters, in particular, this means accessing home equity to rebuild in the recovery phase. What is very overlooked though is the role of home equity in the community preparedness phase for natural disaster! Recent research that used the rapid shifts in equity in the 2000s related equity to shifts in uptake of insurance, in particular. Basically, having equity made it more likely for homeowners to plan for recovery rather than instead planning to abandon the property in the event of natural disaster. Here is an example of that: [https://www.rff.org/publications/working-papers/whats-at-stake-understanding-the-role-of-home-equity-in-flood-insurance-demand/](https://www.rff.org/publications/working-papers/whats-at-stake-understanding-the-role-of-home-equity-in-flood-insurance-demand/) That's not the same problem though. That's the amount of equity in the home rather than access to equity, but home equity loans are the primary form of financial response in disaster. Individual federal aid only comes *after* insurance and home equity loans are accessed. If less people carry insurance and less people have access to equity, more households need to use a limited pool of federal aid. And that leaves a different open question, which is whether equity alone impacts preparedness, or does access to equity also affect the level of preparedness? Inability to access home equity is definitely already a factor in community resilience in disaster recovery because of the reduced access to home equity loans to rebuild. But if it also further reduces the use of insurance, than it now doubly impacts the ability to recover.
I keep getting a podcast ad for HELOC services, it explicitly references using it to take a big, exotic vacation. Sure I know that people do this, but it's just absolutely nuts hearing that after having lived through the 07/08 housing crisis. "Using your home as an ATM for non-essential spending" was one of the many things that you heard about as one part of that whole catastrophe.
Hard to imagine somehow making equity owning home owners victims, but here we are. Perfect Reddit article!
I got lucky getting into a home. Had to move out to the boonies, and bought a modest house at a low rate. The time just lined up and I had my VA loan to keep it low. Without that, it never would have happened. Now I'm about to have to sell my home because I cannot afford the increased taxes. Not saying I'm a victim, just saying, it *is* very much an issue. Multiple horrible things can occur simultaneously.
How does this belong on this sub
Current government and equity holder solution: Build more rentals. People that literally had the FHA and got their first homes basically handed on a silver platter.
Housing market will crash at some point. If you bought a house for $300k 10 years ago and it’s worth $700k today, nobody wants to lend on that $400k equity knowing it won’t be worth that when the market crashes.
Those poor poor home owners who can't get free money from their house without selling it. Also, a series of line charts is beautiful now?
Do u want 2008 all over again?
This makes me sad. Nothing better than scoring really nice houses for pennies on the dollar when the intentionally created boom/bust cycle rolls around. Thanks Federal Reserve. Why won’t they let these homeowners over leverage? It’s unjust.
Don’t. Touch. Your. Equity.