With the rise in home values in recent months in Charlotte and beyond, a growing number of homeowners are seeing an increase in the equity in their property.
Even though the real estate market is showing signs of slowing, more than half of Charlotte-area homeowners with mortgages are now considered “equity-rich,” according to a study.
In addition to increasing your profits if and when you sell your home, there are also ways to use the equity in your home without selling when you need cash.
Here’s what to know about home equity, where Charlotte homeowners are now, and how to get equity out of your home:
What is home equity?
Home equity is the financial value of your home to you.
It’s calculated, explains personal finance education program Investopedia, by determining the “current market value” of your property and subtracting “any liens attached to that property,” such as a mortgage.
The equity in your home is variable because the market value of your property can go up and down over time and the amount of your mortgage will decrease as you make payments.
Are Charlotte owners getting ‘stock rich’?
As home values have surged across much of the country in recent months, including Charlotte, experts say more and more homeowners are becoming “equity rich”: a phenomenon where homeowners are at least 50 % equity in their home.
A study – by real estate research firm Attom – found that up to 48.1% “of mortgaged residential properties in the United States were considered equity-rich in the second quarter of 2022”. That’s up, Attom noted, from 44.9% in the first quarter of 2022 and 34.4% in the second quarter of 2021.
The numbers looked even better for Charlotte owners.
Attom estimates that of the 484,356 properties with “ongoing mortgages” in the Charlotte metro area, 60.1% were equity-rich in the second quarter of 2022. That’s up from 56.3% in the first. quarter of the year and 1.8% of mortgages on properties that Attom says are “seriously underwater.”
Statewide, Attom puts the percentage of North Carolina’s 1,826,272 outstanding mortgages that are equity-heavy at 53.3% for the second quarter of 2022. That compares to 2.5% mortgages that Atom classifies as “seriously underwater”.
This matches much of what has been seen in the area.
According to Attom, of the top 10 states where the share of equity-rich homes grew the most from Q1 2022 to Q2, seven were in the South region. South Carolina was among them, with the share of equity-rich homes rising from 41.2% to 46.5%.
And a survey conducted earlier in the year by WRAL TechWire found that around 56% of owners in the Triangle area were now equity-rich.
How to withdraw equity from your home
When you sell your home, having more equity in your home means more profit.
But there are also ways to use the equity without selling your property.
A home equity loan, also known as a “second mortgage,” “allows you to borrow a lump sum against the equity in your current home at a fixed rate for a set period of time,” Investopedia explains.
You can also use your equity “to secure a new mortgage for more than the amount owing on your existing mortgage,” a process often referred to as “cash-in refinancing.” You can then use the funds to pay off your original mortgage and cover other expenses.
Refinancing means you will likely be subject to today’s rising interest rates.
Another option is a home equity line of credit, also known as a “HELOC”, which is “a revolving line of credit based on the equity in your home”.
“Often there’s a 10-year drawdown period, where you can access your credit as needed, with interest-only payments,” Investopedia explains. “After the drawdown period, you enter the repayment period, where you must repay all the money you borrowed, plus interest.”