December 31st, 2019 10:22 AM by Jackie A. Graves, President
Here's what you can
do besides selling your house
Home prices in the U.S. rose by almost 5 percent last year,
according to S&P CoreLogic Case-Shiller Indices. That happened even though
prices fell in some markets—especially on the West Coast and in cities
including Chicago and Boston—as buyers worried about the prospect of higher
mortgage rates, among other things.
This year, though, prices are expected to continue to rise, but by
just 3 percent, says Lawrence Yun, chief economist of the National Association
If you're planning to sell your home, rising prices is good news.
But if you expect to stick around for a while, there are still ways you can
benefit as the value of your home appreciates.
Here's what to consider.
You Could Drop Mortgage Insurance
When your home's value rises, your equity does,
too. According to CoreLogic, a property-data research company, home equity
for U.S. homeowners with mortgages grew more than 8 percent in 2018 compared
with the same period in 2017.
That increase could save you money if you put down less than 20
percent when you bought your home. In that case, you're probably paying private
mortgage insurance (PMI), usually 1 percent of the purchase price, which
protects the lender if you default.
If your equity is now at least 20 percent of the original purchase
price, you're no longer required to pay for mortgage insurance. On a
$300,000 home, that could be a savings of about $3,000 a year, or $250 a month.
What you can do. Contact the company that services your mortgage and ask that
mortgage insurance be removed, says Julienne Joseph, assistant director of
government housing programs at the Mortgage Bankers Association in Washington,
D.C. The servicer will then do its own calculations to confirm. You may have to
provide a new appraisal, which can cost $200 to $400.
If your home equity has gone up, you might qualify to borrow more
than in the past. While originations of home equity lines of credit (HELOCs)
significantly in the early part of 2018, they fell by 11 percent in the
third quarter in many large metropolitan areas, according to Attom Data
Solutions, a real estate data company. But Todd Teta, its chief product
officer, says he thinks that HELOC originations will rebound this year because
home prices continue to rise.
Borrowing based on the equity in your home is a relatively
inexpensive way to finance a home improvement project. According to Bankrate, interest rates on
floating-rate HELOCs currently average around 6 percent. That's comparable to
the best personal-loan rates offered by national personal-loan lenders like
Lending Tree and SoFi.
HELOCs have other advantages over personal loans. Unlike personal
loans, HELOCs let you borrow small amounts over time, which can help keep your
interest payments lower than if you take out a large sum all at once. They
also offer longer repayment periods (30 years vs. 10 years), which means you
could pay less per month (though you could also end up paying more total interest
And a HELOC can be far less costly than using a credit card to pay
for a home improvement project. Credit card interest rates are typically in the
But be careful about how much you borrow. Many homeowners who
refinanced or took out large home equity lines leading up to the Great
Recession ended up owing more than their homes were worth when prices
plummeted, says Keith Gumbinger, vice president at HSH.com, a mortgage data provider. While most economists don't
see the same debacle on the horizon, history serves as a warning.
"It can take many years to build equity in your home but only
a few purchases or a small decline in value to wipe it all out," Gumbinger
Also, be wary of borrowing with a reverse mortgage, an option for
homeowners ages 62 or older. If after borrowing you can't afford the insurance,
taxes, maintenance, or monthly debt payments, you could lose your home.
What you can do. Shop for home equity products through loan aggregators like
HSH.com and Bankrate. Check out local and national credit unions, which often offer
very competitive rates in return for a minimal membership fee. Make sure you've
accounted for all fees—closing costs and annual maintenance fees, for
instance—as well as terms and limitations. A fixed-interest home equity loan
with a lower annual percentage rate (APR) still may not be as affordable as a
HELOC if you have only a few years to pay it back. The Consumer Financial Protection
more information on what to know before you borrow.
The portion of your homeowners insurance that covers the
dwelling and outbuildings isn't tied to your home's market value; it's related
to the cost of rebuilding. In theory, your insurer is keeping tabs on that and
raising your premiums accordingly. (Consumer Reports recommends buying
insurance that automatically raises your coverage to respond to home-building
inflation and the costs of complying with building-code updates.) Bottom line:
You don't need to automatically raise the coverage for damage to your home just
because your home's value has risen.
However, as your home equity rises, so does your net worth. So you
might need additional coverage in case someone sues you for, say, an injury on
What you can do. Buy umbrella liability coverage or, if you already have such a
policy, increase the coverage, says Michael Barry, a spokesperson for the
Insurance Information Institute, an industry trade group. For just a few
hundred dollars you can buy a policy offering $1 million in coverage above what
you already have on your homeowners policy.
In most places in the U.S., higher home values can lead to higher
property taxes. That can cause a financial squeeze if your income doesn't rise
What you can do. If you think your property taxes are too high, you can appeal to your municipality. In most cases,
you'll need to present your local taxing authority with a new appraisal done
either by you or a professional. It has to show that the tax increase isn't
warranted based on how other comparable homes in the area are selling.
Typically, municipalities offer an open time window once a year for those
That gambit probably won't work, though, if the value of the homes
around you have risen at the same rate as yours. So look into other tax breaks
your state or municipality may offer for certain populations. In Texas, for
instance, disabled people, veterans, and those age 65 and older get
special exemptions from property taxes, including school taxes; for older
disabled veterans, the exemption is up to $12,000. In New York, some towns and
villages offer volunteer firefighters and ambulance workers exemptions
of up to $500 on their property taxes.
Perhaps the greatest overall risk is what economists call the
"wealth effect"—the perception that you're richer. If that prompts
you to spend more without the cash flow to back it up, you could be headed
"It can create a false sense of security," says Justin
McCarthy, managing partner with Mariner Wealth Advisors in New York City.
A higher home value—and net worth—could help you meet financial
goals, especially if you're counting on a home sale or planning to borrow
money, says McCarthy. But don't make spending decisions based on your home's
value alone. You also need to consider other financial assets, including your
income and your retirement savings.
What you can do. Don't change your day-to-day spending habits. If your home's
higher value prompts you to consider selling or taking out equity, talk to
a financial adviser to determine your options. He or she can analyze your
financial assets—your home, investments, expected Social Security and pension
benefits, and earned income—and devise a plan to help you reach your
McCarthy says he and his colleagues take a conservative view
toward home values when they plan for clients, because in many cases homeowners
intend to stay put and may never have the benefit of living off the profits
from a home sale.
Consumer Reports recommends finding a financial adviser who promises to be your fiduciary, which means acting
in your best interests at all times. Certified financial planners and
registered investment advisers are among the professionals who take such a
fiduciary pledge. You can find planners who are fiduciaries and charge by
the hour or for a flat fee at Garrett Planning Network. Several financial
advisory companies, such as Personal Capital, Betterment Premium, and Vanguard
Personal Advisor Services also offer advice for a reasonable fee.
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