Homeowners who have amassed a substantial amount of equity in their houses, especially as valuations have risen in many metro areas, can utilize the money for emergencies, college tuition or home improvements.
The value in home equity rose from September 2015 to September 2016 by $1.02 trillion, according to the Federal Reserve as the real estate market has stabilized.
The increase in home equity gives homeowners flexibility and more lending options such as obtaining home equity lines of credit (HELOCs) and home equity loans (HEL). HELOCs are often favored by consumers who do not need to access cash immediately but want the option to draw down on their line of credit as they need it, such as when they need to make an emergency house repair or pay for college tuition. Until a homeowner accesses the line of credit, they are not accruing interest or making monthly payments.
The loans require consumers to borrow a set amount of money and make equal installments during a 10- or 15-year period, but the current interest rates are more favorable than credit card rates and average 5.2%, according to Bankrate.
Lines of credit typically give homeowners a 10-year period and the funding is available for use like a credit card. Another advantage is that consumers make interest-only payments until the draw period ends. The current interest rates average 5.12%.
The current low rates are beneficial to homeowners who need the additional capital, said Jeff Golding, chief growth officer at IRH Capital, a Northbrook, Ill.-based financial company.