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An illustration of a house with a two-car garage
An illustration of a house with a two-car garage
An illustration of a house with a two-car garage
published january 4, 2022.

With values on the rise, home equity is sometimes greater than homeowners realize.

Toilet paper wasn’t the only thing that Americans hoarded during the Covid-19 pandemic. Many also cashed out the equity that was growing within their own home.

“Prior to Covid, weddings and college education were among the most popular reasons to get a home equity loan,” says Ashley Collins, STCU assistant manager of consumer lending operations. “Now consolidating debt and keeping cash around for an emergency is top. People want that safety net.”

In addition, more homeowners than ever before are using their home equity to compete for their next home. In the hot real estate market of 2021, Realtors advised buyers to get a home equity loan on their current property to use as a down payment on their next, or second home.

“It can help you beat offers on properties where competitors don’t have the cash to put down,” says Collins at STCU, which closed on a record $27 million in home equity loans in August 2021.

Home equity is the difference between the appraised value of your home and its remaining mortgage balance. With home values on the rise, the equity sometimes is greater than homeowners realize.

By taking the cash, or equity, out of your home, you can pay for home improvements, consolidate debts at a lower rate, fund an emergency or vacation, or make other investments. Most lenders, however, limit the amount you can borrow to about 80 percent of the equity in your home. The loans must be repaid over time or whenever you sell your home.

Cash-out refinancing was at an all-time high during the pandemic, reports Black Knight Inc., a provider of real estate technology services. In the first year of the pandemic, the Jacksonville, Fla.-based firm tracked 5.5 million homeowners nationwide who took advantage of low rates and record jumps in home values to tap their home’s equity.

“They stared at ugly curtains too long and decided it’s time to renovate.”

Financial security wasn’t the only reason homeowners sought to access their home’s equity during the pandemic. Millions of Americans, forced to work at home, started to notice certain shortcomings in their homes.

“They stared at ugly curtains too long and decided it’s time to renovate,” Collins says.

Jessica Riley, who works alongside Collins as STCU’s consumer origination assistant manager, says she’s seen credit union members use home equity for adoption, fertility treatment, and emergencies. One member took out a home equity loan to pay off his mother’s house, helping her retire without debt. Others, she said, have used their equity to fund a new business or acquire recreational property.

Jennifer Retana, manager at STCU’s Queensgate Branch in Richland, recently got a home equity loan to install a pool for her family of eight.

“With Covid, it’s hard to take the family out for physical therapy,” says Retana, who has two children with disabilities. “We got the loan so we could be ready to build the pool next summer.”

Applying for a home equity loan is easy, and the deal can be completed in about four to six weeks once you determine the best type of loan.

Some STCU members lean toward a home equity line of credit, because the credit union may cover all the fees except for appraisal. Unlike a fixed-rate, lump-sum equity loan, borrowers with a line of credit can draw funds as needed, paying interest only on the money they use. Consult with a loan officer to learn which type of loan is best for you.

Your lender also can help determine your home’s value, a process that uses historic data and onsite appraisals, not Zillow estimates or county tax appraisals.

“A remodeled room doesn’t always add value, and emotions can exaggerate what we think our homes are worth,” Collins says. “But most people are pleasantly surprised by the dollar amount.”

When shopping for a lender, don’t stop with your comparison of interest rates. The Federal Trade Commission recommends you also check the fees charged by your lender, including any application, processing, underwriting, or appraisal fees. Extra fees can wipe out the savings in a lower rate. Negotiate with more than one lender to get the best deal, the agency says, and read your closing papers carefully to understand what’s expected for repayment of your loan.

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Editor's note:

STCU is an Equal Housing Opportunity lender. This article has been provided for educational purposes only and is not intended to replace the advice of a loan representative or financial advisor. The examples provided within the article may not apply to your situation. We recommend you speak to a loan representative or financial advisor concerning your specific needs.