Forbes: Home Equity Tapping Options After Home Value Rises

For many people who have seen their home values rise during this low rate environment and additional activity in some regional real estate markets, some may be asking questions about what they can do to take advantage of these changes if they own a home. Taking equity out of the home is one such option, and a reverse mortgage can provide a pathway to doing that for those in the right situation.

This is according to authors Jen A. Miller and Mike Cetera in a column at Forbes. Taking out equity from your home does present potential advantages, but there are other things that should likely be considered alongside those advantages before choosing to find a method for extracting equity, the pair says.

“With interest rates so low, taking some equity out is [an] option,” the pair writes. “You can use that money to make renovations to your current home—which may be tax deductible, says [CFP Danny] McAuliffe—or pay off high interest credit card debt—as long as you don’t then rack up debt on them again.”

The tapping of home equity can be accomplished through several different product channels, the pair writes, and these can include a reverse mortgage in addition to something like a Home Equity Line of Credit (HELOC) or a cash-out refinance.

“Homeowners at least 62 years old also can take out a reverse mortgage, which lets them borrow from their home’s equity,” they write.

Money drawn from a home’s equity can be used for a variety of purposes including the purchase of another property either to live in or rent out, but becoming a landlord isn’t necessarily for everyone especially if certain difficulties arise between the property owner and tenants.

Be sure not to take all of a home’s equity out of it, the pair advises.

“When prices dropped, they were stuck because they had used all the equity up in their home for something else,” says Dottie Herman, CEO of a brokerage firm to Forbes.

Other options for taking advantage of a rise in a home’s value can include selling the home, as well as having the increased value properly appraised in order to have private mortgage insurance (PMI) canceled, presuming that it was tacked onto the initial forward mortgage with a low down payment.

Read the column at Forbes.

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