2018: The year of HELOCs and cash-out refinances?
Cashing in on that equity
It looks like 2018 may be the year of the HELOC. According to new data from Black Knight Financial Services, Americans now have $5.4 trillion in home equity. This provides a prime landscape for cash-out refinances and home equity lines of credit.
Equity ends 2017 on a high
According to the most recent Mortgage Monitor report from Black Knight, America’s 42 million homeowners have more than $5 trillion in equity to borrow against; a new peak for the market. Since 2012, available home equity has increased by more than $3 trillion.
“Over 80 percent of all mortgage holders now have available equity to tap via first-lien cash-out refinance or home equity line of credit,” Black Knight reported.
Many of these homeowners have interest rates lower than the current market rate. This makes HELOCs an ideal option for taking out cash without risking higher interest payments.
“HELOCs have been an attractive option for borrowers to utilize available equity without sacrificing low first-lien interest rates,” Black Knight reported. “Over half of the nation’s tappable equity is held by borrowers with first-lien interest rates below 4.0 percent, making HELOCs an attractive option.”
Homeowners in Los Angeles have the most equity to pull from, with $730 billion in total home equity. San Francisco, New York, Seattle and San Jose homeowners also have high levels of equity to access. California accounts for 38 percent of all accessible equity in the country.
Tax changes may play a role
Though HELOCs are a great option for homeowners seeking cash infusions, newly approved tax reforms could have an impact.
“Under the recently passed tax reform plan, interest on HELOCs is no longer deductible, increasing the post-tax expense of such products for those who itemize,” Black Knight reported. “With interest rates on these products no longer deductible, the value proposition has changed.”
Homeowners considering a HELOC or cash-out refinance given recent tax changes should speak with their accountant before making any moves. The benefits of liquidating home equity depends on whether you itemize your returns, as well as the amount you're seeking.
“In many cases, for borrowers who continue to itemize deductions, carrying high-first lien unpaid principal balances and are taking out low dollar lines of credit, the post-tax-reform math still favors HELOCs,” Black Knight reported. “However, for low-to-moderate UPB borrowers taking out larger amounts of equity – again narrowing the scope to borrowers that will continue to itemize – the post-tax math may now favor cash-out refinances instead, even if it results in a slight increase to first-lien interest rates.”
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