With untapped home equity at an all-time high of $14.4 trillion, homeowners could be poised to start cashing in, new research suggests.
Home equity — the difference between a property’s value and the amount owed on it — is about $1 trillion higher than its peak in 2005 before the Great Recession, according to a TransUnion study released this week. By 2009, the level had dropped to about $6 trillion as the housing market struggled to recover.
“Consumers have been building up that equity over the last seven years or so,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “It has really come roaring back.”
Interest on a HELOC is typically tax-deductible only if you use the money to finance home improvements — one reason a home equity line is most commonly used for this purpose.
With interest rates rising on consumer debt, home equity loans or lines of credit could be an appealing option for consumers looking to borrow money at a lower cost, Mellman said.
“When rates were low, consumers were taking out equity by refinancing their mortgage,” Mellman said. “Now, with [mortgage] interest rates up, a lot of people might not want to touch their original mortgage.”
In other words, if refinancing would mean paying a higher interest rate on your primary mortgage, it might not be a wise move.