Are you thinking about selling your house, but worried about today’s high mortgage rates? You’re not alone. Many homeowners are hesitant to sell, fearing they’ll have to take on a higher mortgage rate on their next home. However, there is good news. While rates may be high, so is home equity. In fact, according to recent data, the majority of homeowners in the US have significant equity in their homes. Read on to learn more about why equity is your key to affordability and why you shouldn’t let mortgage rates hold you back from selling.
How Much Equity Do Homeowners Have Now?
First things first, how much equity do you currently have in your home? According to the Federal Housing Finance Agency (FHFA), the Census, and property data provider ATTOM, nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or have at least 50% equity. This means that if you’re thinking about selling, you may be in a better position than you think. The equity you’ve built up in your current home could significantly offset the higher mortgage rates on your next home.
How Equity Helps with Your Affordability Concerns
Here are a few ways that your home equity can help you be more financially comfortable when it comes to your next home purchase.
Be an all-cash buyer: If you’ve been living in your current home for a long time, you might have enough equity to buy a new house without having to take out a loan. If that’s the case, you won’t need to worry about mortgage rates at all. As the National Association of Realtors (NAR) states:
“These all-cash home buyers are happily avoiding the higher mortgage interest rates . . .”
Make a larger down payment: Your equity could be used toward your next down payment. It might even be enough to let you put a larger amount down, so you won’t have to borrow as much money. This means that today’s rates become less of a sticking point, and you’re able to get a better deal on your mortgage overall. As Experian explains:
“Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”
Get a better loan-to-value ratio: Mortgage lenders use a loan-to-value (LTV) ratio to determine how much you can borrow. The lower your LTV, the more you can borrow and the better your chances of getting a low interest rate. Your equity can help you achieve a more favorable LTV ratio and, in turn, a better mortgage deal.
Refinance your current mortgage: If you’re not in a position to buy a new home just yet, but you’re worried about today’s rates, you may want to consider refinancing your current mortgage. With interest rates still relatively low, now could be a good time to refinance and lock in a better rate before they rise any further.
Don’t let today’s mortgage rates stop you from selling your home. With over two-thirds of homeowners having built up significant equity, there are plenty of ways to use this to your advantage and remain financially comfortable during your next home purchase. Whether you become an all-cash buyer, make a larger down payment, get a better loan-to-value ratio, or refinance your current mortgage, there are options available to you. Speak to a real estate professional to help you make the most of your current equity and navigate today’s market with confidence.
