Last updated: April 6, 2018

Accessible Mortgage Equity at an All-Time High

According to the Mortgage Monitor report generated by Black Knight, the amount of accessible equity is at an all-time high. More and more Americans are discovering that their homes have more value available within them. One of the biggest drivers of this home equity trend are appreciating property values across the United States. Home values have consistently increased for the past several years as a result of a housing inventory shortage, favorable rates, and high demand.

Since 2012, the amount of tappable equity has increased by more than $3 trillion. This is an increase by more than 100% in that time.

What is Tappable Equity?

Tappable equity is another term for equity that can be accessed with a cash-out refinance loan or a HELOC. Tappable equity happens when the market value of the home is greater than the principle of the mortgage by a certain percentage. A homeowner cannot access more than a certain amount, often 80%, of the loan-to-value (LTV) of the principle.

For example, let’s assume that the homeowner has a $150,000 home and the LTV cannot exceed 80% according to the mortgage lender. They currently owe $75,000 on the mortgage. That means the homeowner has $45,000 of tappable equity. That was calculated by a multiplying the $150,000 home value by 80% and then subtracting away the outstanding mortgage principle of $75,000.

There is now more than $5.5 trillion in tappable equity in the United States housing market, which is an all-time high.

Cash-Out Refinance

A cash out refinance loan means that the asset owner is liquidating some of the equity for funds. Technically, refinance loans of all varieties are cash outs, but often that cash is used to pay off the old mortgage and replace it with a more favorable one. This is often what homeowners do to lock in a better rate or a different payment period.

More commonly, cash out refinance loans refer to converting some of the equity into cash while replacing the existing mortgage with a new one. This cash can be used for a variety of other purposes. The same Mortgage Monitor report revealed those homeowners that refinanced with a cash out loan accessed on average $68,000.

Negative Equity

Negative equity arises when the property value of the home falls below the principle of the mortgage that it is used to secure. This is most often due to economic trends lowering the market value of the home. This means that the home cannot be sold to cover the full cost of the mortgage principle.

This is often known colloquially as being “underwater” or “upside down”.

According to a recent article by HousingWire, rising home prices over the last year have decreased the number of negative equity borrowers. Currently, there are only 2.7% of borrowers that have negative equity in their home. This is approximately 1.36 million borrowers. Compared to the start of 2017, there has been an increase of more than 35% of homes with positive equity. That means that 800,000 American homeowners over the last twelve months have gained positive equity in their home mortgages.

Pacific Union Financial

Pacific Union Financial, LLC is a full-service mortgage lender providing originations and loan servicing across the United States. A privately held direct lender with Fannie Mae, Freddie Mac, and Ginnie Mae approval, we originate loans through our Retail, Wholesale, and Correspondent channels. Let us know how we can help you expand your business.