The middle class has been built up by a surge in home prices.
Between 2010 and 2020, the total housing wealth grew by $8.2 trillion. The housing boom added value to homes.
Unless people plan to sell their houses, there are only a few ways to increase their equity.
How to calculate your own personal inflation rate is one of the topics discussed in Invest in You.
Dennis Nolte, a certified financial planner and vice, said that if you can monetize some of your equity, it makes sense in most situations.
Financial experts recommend what to do.
Refinancing is one way to get money from the increase in value of your home. If you use a cash-out refinance, you would be able to add some money to your savings or put it towards another goal.
You can get a larger mortgage than you had before, so you don't have to pay the difference back in cash. It may be a win-win situation if you can reduce your monthly payments or get a lower rate on your mortgage.
It may not be the best option for homeowners right now. Mortgage rates are rising with interest rates. It's less likely that someone would be able to get a better rate now.
The rates have shot up so quickly that they could be as much as twice what the current rate is.
Extra closing fees can make it hard to re-finance.
A home equity loan can allow you to get some of the value of your house. It is a loan that you take out against the value of your home and pay it off over a period of 10 to 30 years.
closing costs and fees can be included in these loans. You have to take out a lump sum and pay off the entire amount plus interest. Fixed interest rates can help you budget long-term.
Home equity loan rates range from 3% to 12% depending on the borrowers, according to Bankrate.
A home equity line of credit, also known as a HELOC, is one of the best ways to access equity in your home without selling it.
You don't have to take it all at once or use it all if you use a home equity line of credit. You could have access to a $100,000 home equity line of credit if you needed it for an emergency repair or renovation, instead of having a $100,000 loan.
"You have a pool of money you can draw on, and it doesn't cost anything unless you use it," said Thomas Blackburn, a CFP with Mason and Associates in Newport News, Virginia.
It makes sense to have a HELOC in place before you need to draw on it, said Nolte.
Interest rates on HELOCs are low. According to Bankrate, people with good or excellent credit can get HELOCs with rates from 3% to 5%. Rates may be in the 9% to 10% range for those with fair scores.
"Now might be a good time to lock in those lower interest rates as we have seen they go a little higher and will continue to," said Castro.
Financial advisors recommend that you use your home's equity to pay down other debt as well.
If you have high interest rate credit card debt, this makes sense. Credit cards have an average rate of more than 16%.
He said that some people have had various forms of debt and have gotten paralyzed trying to figure out how to pay it all off with high interest rates.
If that is the case, it would make sense to pay off credit card debt with a home equity line of credit or a cash-out refinance and lock in a lower interest rate.
It is a nice bridge, according to Blackburn.
This should go with a plan to pay back the home equity loan or cash-out refinance.
Castro said that you want to make sure that you add in any payment into your budget and can really afford it.
It shouldn't be taken lightly, there should be a strategy behind it.
Over time, the interest on the line of credit is going to go up because of the variable rates. It is important to have a plan to pay off the line before rates go up too much.
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