Considering selling your real estate property? The current state of mortgage rates might be causing you to question whether it's the right move. Many real estate owners are hesitant to sell and potentially acquire a higher mortgage rate for their next property. If this concern has crossed your mind, it's important to recognize that while mortgage rates are presently elevated, so is the value of your home equity. Here's what you should be aware of.

Bankrate explains exactly what equity is and how it grows:

“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”

In other words, equity is how much your home is worth now, minus what you still owe on your home loan.

How Much Equity Do Homeowners Have Now?

Lately, your real estate equity has been increasing more rapidly than you might expect. To provide some perspective on the typical homeowner's equity position, CoreLogic reports:

“. . . the average U.S. homeowner now has about $290,000 in equity.”

This substantial figure is a result of significant real estate price appreciation in recent years, which accelerated the accumulation of equity. While the real estate market has started to stabilize, there continues to be greater demand for real estate than the supply available for sale, leading to further increases in home prices.

As per the Federal Housing Finance Agency (FHFA), Census data, and ATTOM, a property data provider, almost two-thirds (68.7%) of homeowners have either fully paid off their mortgages or hold at least 50% equity (refer to the chart below):

This means that nearly 70% of real estate owners presently possess a substantial amount of equity.

How Equity Addresses Your Affordability Concerns

Amidst the current affordability challenges in the real estate market, your equity can play a pivotal role in your decision to relocate. Once you sell your real estate property, you can leverage the accrued equity to facilitate the purchase of your next one. Here's how it works:

Become an all-cash buyer: If you've lived in your current real estate property for an extended period, you might have accumulated sufficient equity to purchase a new property without requiring a loan. In such cases, you can avoid borrowing money and concerns about fluctuating mortgage rates. The National Association of Realtors (NAR) highlights:

“These all-cash home buyers are happily avoiding the higher mortgage interest rates . . .”

Increase your down payment: Your real estate equity can be allocated towards a larger down payment on your next property. In fact, it might be adequate to allow for a more substantial down payment, reducing the need for borrowing and alleviating concerns about today's interest rates. Experian clarifies:

“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.”

Bottom Line

If you're contemplating a real estate move, the equity you've built up can have a significant impact, particularly in today's market conditions. To ascertain your current real estate equity and explore how you can utilize it for your next property purchase, let's connect.