Utah Valley single-family homeowners have logged up to $100,000 more in equity in the last five years, according to statistics from the Wasatch Front Board of Realtors.
Back in September 2012 the median sold price for a home here was $211,000. Compare that to August this year where the median sold home was $314,610. That’s a 49.1 percent increase. To find out what your home is worth go here.
In the last 12 months, Utah Valley homeowners have seen a 10.7 percent increase in value, from a median of $284,600 in September 2016 to $314,610 last month, according to MLS figures.
So what are homeowners doing with all that equity (the difference between the market value of your home and what you owe on it)? Some are using it to refinance or move up to better homes, while others are using it to upgrade their homes or make them fit their lifestyle better. Others are consolidating debt. Regardless, many are staying in their homes, which accounts for the shortage in homes for sale we are continuing to see. Some homeowners tell me they are staying put because they can’t find a home they want more than the one they have.
As of this writing the number of homes listed for sale on the MLS are 8.29 percent fewer than a year ago. The number of homes under contract is 8.31 percent below last year. But the gap is narrowing.
Some homeowners are putting the equity in their homes to work. Here is some sound advise from my brokerage on how to use that equity:
Refinance: In essence, this is a way of paying off your current mortgage and getting cash out based on how much equity you have in your home. This is a great way to lower or lock in your mortgage interest rate. And it is a way to get large sums of money – $30,000 or more – because you have 15 years to 30 years to pay it off.
On refinances, you may have to pay closing costs; discount points (used to increase the lender's yield or profit on the loan and equal to one percent of the loan amount); appraisal fees; application or loan processing fees; document prep and recording fees; origination or underwriting fees; lender or funding fees; loan broker fees; and miscellaneous other fees (i.e. overnight mail charges, etc.).
• A home equity loan or second mortgage is good for homeowners who don’t need quite as much cash and whose mortgage interest rate is already competitive. The term is much less than a conventional 30-year mortgage – five to 15 years. These installment loans can be paid out in one lump sum, so they’re good for repaying credit card debt or remodeling projects, even buying a new vehicle.
You must be sure you will be able to pay this loan back, because it’s easier to foreclose on a second mortgage than on a federally insured first mortgage. Find out about closing costs and points in advance, as well as balloon payments, hidden fees, or credit or property insurance tacked on.
• A home equity line of credit or HELOC, works like a credit card – you agree to a pre-set limit and then borrow as you need to, or in the event of an emergency, usually for up to 10 years. Then it may revert to a regular second mortgage for another 10 years. Lines of credit are good for expenses like debt consolidation, major home improvements, college tuition and expenses, and unexpected expenses. The beauty of this is that you don’t make payments unless you use the money, but you have the security of knowing money’s there if you need it. They make a great emergency fund and the money is as easy to get to as writing out a check or using a debit card.
Some credit lines have variable interest rates, with no cap on how high they go. Others do have a cap. Make sure you read the fine print and find out exactly how much it could increase, then do the math. And if you’re an impulse buyer, this may not be a wise choice. A home equity line of credit shouldn’t be used for frivolous luxury items, unless it’s a one-time purchase and not a pattern of behavior. Never, ever default on a HELOC.