Experts agree that the economic recovery from the COVID-19 crisis will be slow. If you’re one of the 23% of Americans who has savings to cover six months of expenses -- well done. If not and you find yourself looking for ways to save money or generate some much-needed cash, you may be able to leverage your equity if you are a homeowner. Bellco Credit Union shares four ways you may be able to utilize your home’s equity to boost your finances.
1.Home Equity Loan or Home Equity Line of Credit
Home values in the Denver metro area have increased by nearly 20% over the past five years, so if you purchased your home in the last few years, you probably have a good amount of equity. You can borrow against that equity to help you with expenses – either through a home equity loan or home equity line of credit. Keep in mind that this loan does need to be repaid over a period of time, but at a much lower interest rate than say, putting expenses on a credit card.
2.Refinance Your Mortgage
If you haven’t looked at refinancing lately, doing so could save you hundreds of dollars each month, leaving you more money for other expenses. Interest rates are historically low right now, so check to see if you would benefit from refinancing to a lower rate. Most lenders will let you roll closing costs into your new loan, and you will likely be able to skip a payment while the new loan is being processed, giving you some extra cash in your pocket.
With mortgage rates hovering near all-time lows, now might be the perfect time to consider consolidating other debts. Whether you’ve got auto loans, credit cards or personal loans, you can reduce the interest rates you’re paying by consolidating that debt through a mortgage refinance. Reducing high-interest debt can save you money monthly.
4.Cancel your PMI
If you have an existing mortgage with private mortgage insurance (PMI) you can save money each month just by getting rid of your PMI. Between your payment history and the rise of home prices, your loan-to-value ratio may now be low enough for you to cancel the PMI without changing what you owe on your mortgage. Even if current rates are comparable to the rate on your original mortgage, getting rid of PMI can save you tens of thousands of dollars over the life of your loan.
While we’re living in uncertain times for the foreseeable future, home values – particularly in the Denver metro area – are holding strong. This means that your home’s equity can provide you with a valuable lifeline to ease the burden of credit card or other personal debt, or allow you to build up your emergency savings. Speak with a lender at your credit union or bank to find out what your options are with your home mortgage, and make sure you understand the pros and cons of tapping the equity in your home. And if you’re facing financial hardship and are struggling to pay your current mortgage, contact your lender to determine what relief options may be available.