Americans’ home equity reached another record high in the second quarter, according to a new report by mortgage data firm Black Knight. That metric, along with still-low mortgage rates, sets the stage for a continued boom in mortgage refinancing.
Black Knight says “tappable home equity” — the equity homeowners could borrow against while maintaining a loan-to-value ratio of less than 80 percent — jumped to a record $9.15 trillion at the end of June.
“U.S. homeowners with mortgages gained another $1 trillion in tappable equity in the second quarter alone,” says Ben Graboske, Black Knight’s president of data and analytics. “This is by far the strongest growth we’ve ever seen and equates to some $173,000 in equity available to the average mortgage holder, a $20,000 increase in just three months.”
The surge in home equity goes hand in hand with soaring home values. Prices are rising in nearly every part of the country, as shortages of homes for sale lead to bidding wars by desperate buyers. Meanwhile, the average rate on a 30-year fixed-rate mortgage fell to 3.03 percent last week, just 10 basis points above the record low, according to Bankrate’s national survey of lenders.
Cash-out refinances come back strong
In boom times, record levels of home equity open the possibility of using a refinance to extract cash from your home to fund renovations or pay down higher-cost debt. As the housing market has powered through the coronavirus recession, lenders have proven willing to sign off on cash-out refinances.
Black Knight says cash-out refis are soaring. The 1.1 million cash-out refinance loans originated in the second quarter made up fastest quarterly pace in nearly 15 years.
What you can do if your mortgage rate is too high
Does it make sense to refi? Here’s how you can tell:
- Take a look at your situation: Do you have significant equity in your home? Is your rate above 3.5 percent? Do you plan to be in your home for a few more years? If you can answer yes to all of these questions, a refi may make sense.
- Crunch the numbers: Borrowers often forget about the hefty closing costs that accompany a refi. Your savings from the lower rate need to be significant enough to recover those upfront costs. Say you have a $200,000 loan at 3.75 percent. In that case, your monthly payment is $926. If you’re able to borrow $200,000 at 3.25 percent, your monthly payment would fall by $56, to $870 a month. If the refi means paying $4,000 in closing costs, you’d need nearly six years to make back your closing costs before the refi would provide a financial benefit. Bankrate’s refinance calculator can help you decide.
- Shop around: Rates and closing costs can vary widely by lender. Make sure to compare offers from multiple lenders.
- Keep in mind that market conditions are changing: Mortgage rates are difficult to predict, but many experts expect rates to rise only slightly in the near future.