Homeowners Sitting On Record Amount Of Home Equity

American homeowners are now sitting on a record $5.8B in tappable home equity. What are they doing with it? What should they do with it?

According to the data from mortgage analytics company Black Knight, American homeowners now have more positive equity than ever before. This breaks down to an average of almost $150k per home, or a little over $113k when factoring in keeping a 20% equity cushion.

However, a report from CNBC suggests that in contrast with our last report on this data, fewer property owners are tapping this equity. When they do they appear to be choosing cash out refinances over HELOCs, even if it means taking a higher rate on their first mortgage. This may be in part because interested rates are rising, and HELOCs are variable rate loans; though it can also be due to what mortgage lenders and banks are selling. They make far greater commissions on a full refi than a smaller line of credit. Of course, refinancing to a higher rate used to be a big issue for lenders and required proof of providing net savings in order to avoid being accused of predatory lending. Most of those with equity now have rates in the 4% range.

Analysts debate that some owners are not tapping this equity because they are fearful of another market crash, while other may simply not be aware of how much equity they have accumulated over the last couple of years.

Overall this is great news for note investors. It means more borrowers who can refinance and cash you out - even if they don’t have perfect credit or paper trails. Loans are much easier to get when you need a low LTV.

Those borrowers who are made aware of their equity rich status are far less likely to default on their mortgage loans, and are more likely to work with new note holders to get back on track with second mortgage debts. They don’t want to lose all that equity. Most will fight tooth and nail and find a way to scrape together the money to catch up if it means keeping a six figure windfall in equity. This is all great for note performance, even on currently non-performing notes.

This equity is also an incredible opportunity for those who have been thinking of investing in notes, and have equity in real estate. This may be your capital to get started. It can be dangerous to keep stripping equity and increasing payments beyond what you can afford to maintain, or to use it to leverage more bad debt, like car loans, boats, or sinking it in negative returning home improvements and makeovers. A the same time though, this equity may not last. If you don’t use it to acquire more investments and income streams, it is the first money you lose when values dip. Are you willing to let that opportunity slide by? Or will you seize it and develop the passive income streams you need to cover your home mortgage in good and bad times and to increase your overall cash flow?

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