If you haven't noticed—but you probably have—home values aren't just rising. They're skyrocketing. According to the Federal Reserve, median home prices sold in the U.S. have eclipsed $428,000 for the first quarter of 2022. That's capping off a recent spike that's occurred in median home prices since the COVID-19 pandemic when median prices were as low as $322,000 per sale.
What's happening now is a unique opportunity for homeowners who are looking at more home equity than ever before. But there's a problem. Interest rates are rising thus far in 2022, which means that refinancing a mortgage to take advantage of and unlock equity is no longer an option for many. That leaves many investors with added home equity, but no real way to tap at that value short of selling the house.
What Do Rising Home Values Have to Do With HELOCs?
The HELOC, or Home Equity Line of Credit, is an alternative to refinancing. A HELOC lets you borrow against the value of your equity without changing the fundamentals of your mortgage. In other words, if you need cash—for a renovation, for example—then a HELOC provides ample opportunity to borrow against the value of the home without requiring an adjustment in your interest rates.
If your home equity is increasing over time, it gives you more equity to borrow against, thus expanding your opportunities for value from a HELOC. More importantly, a HELOC is a new loan, not a replacement for your current mortgage, which means you don't have to worry about rising interest rates affecting your mortgage if you have a fixed-rate mortgage in place. In short, a HELOC provides the possibility of squeezing value out of your rising home equity without undermining the good work you've done in obtaining favorable loan terms.
We also have to consider one essential element of the HELOC. It's a line of credit based around home equity: it's right there in the name. And if your home equity is going up in theory only, the HELOC makes it possible for you to obtain some value for that home equity. For people who may be rich in home equity but poor in cash, a HELOC can offer some balance and provide the homeowners with more options for debt consolidation, renovations, and more.
How Can You Use the Equity in Your Home to Save Money?
Adding a HELOC to the equation can have wide-ranging effects. But it's most useful in restructuring your debt. If you can obtain a low-interest HELOC, for example, you can then use that money to pay off debts with more expensive interest rates. This is known as "debt consolidation," and is an important tool for people who have a lot of high-interest debt and don't know how to contend with it.
A common use of the HELOC is renovating the home. Some homeowners will refinance their house with a "cash-out mortgage." However, the problem with using one of these in a higher interest rate environment is that it can increase the amount of interest you'll pay. This sometimes adds up to tens of thousands of dollars of added money over the course of the loan. With a HELOC, you can borrow against the equity of your home for investments like home renovations. This can add to the value of the home, which has the potential to create returns when you sell the home. This is particularly true for investors who have done so with home prices skyrocketing.
When is the Right Time to Draw from a HELOC?
There's no universal answer that will make sense for every individual since every homeowner's situation is different. But for many homeowners these days, especially those who refinanced during periods of low interest rates, it's generally in their interest to keep those lower fixed-rate mortgages in place. This serves as a hedge against rising interest rates and inflation. While the purchasing power of the dollar goes down, a homeowner paying off a steady, low-interest loan at least has the stability of their homeowner's expense every month.
This means that for many homeowners, the right time to draw from a HELOC is when you don't want to touch your mortgage, but do want to squeeze some extra value out of the home equity you've grown over the years. In rising interest rate environments with skyrocketing home prices, as we have now, it can be difficult to realize the value you have in a home without either selling it or refinancing with a mortgage that is more expensive.
A HELOC lets a homeowner borrow against home equity, taking advantage of rising home prices without changing the underlying terms of the mortgage. For investors looking at this situation, a HELOC can be a great way to borrow for purposes like paying off high-interest rate debt or putting money back into the value of the home.
What If You Don't Need Money Right Now?
If you don't need money, a HELOC can still potentially save you money. This will depend on the specific situation you're looking at. For example, if you have a lot of debt in high-interest rate credit cards but are otherwise managing your money effectively, you may not feel the immediate need for cash. Consolidating that debt with a HELOC, however, can save you money on the overall debt payments by lowering the interest rates you have to pay along the way. Even if you can manage your debt payments without a HELOC, consolidation through a HELOC could substantially reduce the overall burden of the debt you have to pay.
How a HELOC from Figure Works
Applying for a HELOC from Figure is a straightforward process that doesn't even require you to leave the home you're in. The essential formula is that you can use home equity to borrow from Figure, using a 100% online application to secure funding in as few as 5 days once you're approved.1 In other words, it's a fast, convenient process that works faster than securing a HELOC through a traditional bank.
To begin, you would tell Figure a little bit about yourself, including details such as your employment history and the nature of your home. You can then customize the offer when working with Figure, adjusting the terms and the overall amount you want to borrow. You can then preview the rates available to you, viewing an offer and rate without affecting your credit score.2
Once you've verified your income and assets, you can then speak with a digital notary in most locations to get your documents properly signed and ready to go. As you face rising interest rates across the country, you can still move ahead with a HELOC with a straightforward, simplified process for securing cash for the equity in your home.
1 Approval may be granted in five minutes but is ultimately subject to verification of income and employment. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing. In addition, funding timelines may be longer if we cannot readily verify that your property is in at least average condition with no adverse external factors with a property condition report and need to order a desktop appraisal to confirm the value of your property.
2 To check the rates and terms you qualify for, Figure will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.