Home Equity Options as Living Expenses Rise

The last several months of inflation have left many consumers feeling the pinch of rising expenses, from food to fuel to home improvement costs. However, homeowners may have a hidden source of cash that can help them navigate higher prices: the equity in their home.

While the price of consumer goods has been increasing over the relatively short term, the value of homes has been on a steady upward climb for years. The S&P CoreLogic Case-Shiller National Home Price Index shows that the value of U.S. homes has increased by 8.29% (reflected as of 5/11/2023) annually over the past five years and 11.20% (reflected as of 5/11/2023) over the past three years.

For homeowners, these gains often represent increased equity. And you can turn that equity into cash using lower-interest home-equity-based loan products such as home equity lines of credit (HELOCs), home equity loans, and cash-out refinancing.

How Home Equity Works

Before we dive into how to tap into your home equity, let’s first discuss what home equity means. Home equity refers to the value of your property minus the amount you owe on your mortgage. For example, if your home is valued at $500,000 and you owe $300,000, then your equity is $200,000.

Usually, you benefit from your equity when you sell your house. You pay down your mortgage after the sale and effectively walk away with the difference. It’s the profit you earn from your house. But with inflation raising the costs of nearly everything, some homeowners may wonder if they can use their equity to offset home remodeling expenses or perhaps help fund unexpected costs that threaten their financial stability.

This is where home equity loans can help. These products allow homeowners to tap into their equity in their homes. And because home equity products provide interest rates closer to mortgage rates, they can offer a far more affordable way to access credit than credit cards or personal loans.

While using your home equity for purposes other than upgrading the house is appealing, there are a few considerations. Before you explore home equity loan products, you want to make sure that you can make the resulting loan payment. Missing payments can harm your credit score. Also, your home is the collateral for these products, so in worst-case scenarios, a bank can take possession of your home if you default on a loan.

Exploring Home Equity Products

There are multiple home equity products that homeowners can access to help with updates and expenses. From home equity loans to home equity lines of credit (and their differences), Fifth Third offers the following:

• Fifth Third Equity Flexline^®. A HELOC is a revolving line of credit with a variable rate and offers interest-only payments. It is a smart option in a rising interest rate environment because it allows you to lock in a fixed interest rate on all or part of your principal balance. There are no closing costs, and the revolving credit line will enable you to continue to borrow as you pay down the balance.
• Home equity loan. If you prefer a conventional installment loan with a fixed rate and term, a home equity loan may be the right choice. These loans enable you to have predictable principal and interest monthly payments. There are no closing costs, and you receive the money all at once.
• Cash-out refinance option. When you refinance your home, you can get an Easy Home Refi^® or a traditional mortgage with a fixed rate and term. A cash-out refinance includes refinancing what you currently owe on your home plus the equity you’d like to borrow against. While this option does give you access to your equity, closing costs can vary and you may end up paying a higher interest rate than you currently have, depending on the rates available.

Which Option Is Best for You?

The home equity or mortgage product that works best for you depends on various factors, including your current financial situation, the amount you owe on your home, your local real estate market, and the interest rates available. There’s no right answer, but talking with an expert can help you understand your options and make the most of the equity you’ve earned in your home.

Connect with Fifth Third Bank to learn more about your borrowing options.