How to help homeowners make the most of home equity

How to help homeowners make the most of home equity
As home equity reached another record high this year, mortgage companies have a big opportunity to help homeowners understand how to better manage or leverage their home’s equity to improve their housing and overall financial outlook.

Even as rates are slowly beginning to increase, cash-out refinancing options are still a relevant and potentially beneficial option for many as the amount of equity in homes reaches new levels. In fact, recent data shows that 93% of homeowners have at least 10% equity in their homes.

This is especially important as more borrowers emerge from the pandemic and look to better understand the financial options they have available to them.

Through proper communication around refinancing options available to borrowers and by outlining differentiated interest rates and opportunities for cash-out refinancing, home equity can be used as a tool to help homeowners leverage their home as a financial asset.

Use home equity to raise home value

With equity high and rates still low, this is a great time for mortgage companies to be having conversations with borrowers on cash-out refinancing options and sharing the potential this option gives them for additional cash flow.

This form of refinancing can help borrowers who need a source of money to add additional value to their home, especially as the current market is incredibly attractive for sellers.

This route can be especially beneficial for homeowners looking to sell their home in the future as it can be put towards much-needed home improvements to increase overall home value.

Using cash-out refinancing can help homeowners create more resale value in their properties, pushing them towards a successful emergence from any pandemic-related stress across their financial profile.

Tackle high-interest debt

Cash-out refinancing is also a valuable option as it can be used as a means of consolidating non-home related, high-interest loan payments.

While borrowers may be up to date on their mortgage payments, fallout from the pandemic caused many to get behind on other debts, including on their credit cards. A recent survey from found 42% of U.S. adults with credit card debt have increased those balances since the pandemic began in March 2020.

Many borrowers don’t realize they have equity on the table in their homes that can help them pay down their high-interest credit debt through the use of cash-out refinancing. Mortgage companies have an opportunity to communicate the option for borrowers to refinance and free up equity that is beneficial to them.

Invest in the future

Another benefit of utilizing cash-out refinancing is the ability to use newly freed up cash flow to invest in the future. Whether this be investing in real estate properties, creating a college fund for children or utilizing extra cash to start a business, using a cash-out refinance can open up doors for homeowners.

Using equity to get cash flow that goes towards long-term investments is an attractive opportunity for some homeowners, depending on their specific situation and financial goals.  

While investing has generally become more prevalent across age generations throughout the pandemic, mortgage companies should also be sure to guide borrowers into fiscally responsible paths for cash-out refinancing.

While investing in highly volatile assets can be a great option for “quick cash,” betting on high-risk assets can be detrimental to homeowners looking to utilize cash-out refinancing for long-term success. Homeowners should view cash-out refinancing as an option that gives them flexibility to have more control over their long-term financial success and should be cautious using it as a path toward a quick return.

At a time when homeowners and their families have gone through tremendous financial loss because of the pandemic, cash-out refinancing can be an option that positions borrowers for a brighter financial future.

While many of these options can be beneficial for homeowners, caution should be exercised when newly freed cash flow is used towards returns that are not guaranteed. Mortgage professionals can help best position borrowers for success by communicating refinancing options on a case-by-case basis to ensure it is the most viable option.

Through conversations on better management and leverage of home equity, mortgage providers can help borrowers improve their financial outlook.

Whether the result is to make home improvements, consolidate high-interest debt or even use the free cash flow towards investments, with more equity on the table than ever before, it is crucial for servicers and lenders to maximize their impact by helping borrowers understand all options available to them.
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