Should You Leverage Your Home's Equity to Buy More Property?

Nov 28, 2022

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Should You Leverage Your Home's Equity to Buy More Property?

Have you ever considered leveraging your home's equity to buy another property? With housing prices rising over the past few years, it might be tempting to cash out your equity and put it towards another down payment. But is it really worth it? Clients always ask Maggie and the team about refinancing options, so we're here to break it down a bit further for you. Let's take a closer look.

The Pros of Leveraging Your Equity Through Refinancing

There are some definite advantages to leveraging your home equity and refinancing to buy more property. First of all, you'll likely get a lower interest rate than if you were taking out a traditional mortgage. That's because home equity loans are usually much cheaper than unsecured loans. Additionally, the interest on your home equity loan may be tax deductible—meaning you could potentially save even more money in the long run.

Although we're dealing with some of the highest interest rates we've seen in decades, clients are still happily refinancing lower-rate traditional mortgages for cash-out refinancing opportunities (in some cases, trading 4.5% interest rates for upwards of 8%). Doing so enables them to be more flexible with their home equity.

Capturing that equity allows for a wide variety of possibilities, including purchasing other properties, paying off debts, or making home improvements that can appreciate the value of their home. At the end of the day, it's about what you can do with that investment and what monthly payment you are comfortable with, not always about the interest rate itself.

The Cons of Leveraging Your Equity

Before you go ahead and cash out your equity, there are a few things to keep in mind. First of all, you'll be starting from scratch in terms of building up equity in your property all over again. It could take years to get back to where you started, and in the meantime, you'll be paying interest on the loan. If property values drop, you could also end up owing more than your home is worth — leaving you "underwater" on your mortgage.

Other cons to consider include the fees associated with taking out a home equity loan or line of credit. These can include appraisal fees, origination fees, and closing costs—all of which can add up quickly. If you're not careful, it's easy to get in over your head with a home equity loan, but that isn't a problem if you do your research, prepare accordingly, and work with professionals who have your best interests in mind.

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So should you leverage your home equity to buy another property?

Ultimately, that decision comes down to your personal circumstances and goals. If you're comfortable with the risks and feel confident that you can manage your finances responsibly, it could be a great way to grow your real estate portfolio and increase your net worth. However, if you're not sure you can handle the extra debt load, it might be better to play it safe and stick with your current home and financing arrangement.

Talk to your financial advisor or reach out to Maggie and our team of expert mortgage and refinancing professionals to see what makes the most sense for you.

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Now that 2024 is here, let's talk about something on everyone's mind: mortgage rates. Last year was a rollercoaster, and we're all wondering where rates are headed next. Understanding these trends is crucial if you're dreaming of a cozy cabin or a lakeside retreat here in our beautiful Tahoe area. We’re here to walk you through what the market suggests will happen with 2024's mortgage rates and what it means for your home buying, selling, or refinancing plans. Let's work together to navigate the complexity of this high-interest mortgage market and make your Tahoe home dreams a reality! Recent Trends in Mortgage Rates – A Quick Recap 2023 was quite the year for mortgage rates , hitting highs we haven't seen in a while. But as we entered the new year, things started looking slightly different. Rates began to cool off, and we're all feeling a bit of relief. This shift is especially interesting for those of us in the Lake Tahoe area. Whether you're thinking about buying that dream home by the lake or refinancing your current spot, these rate changes are big news. Let's take a quick look back at how we got here and what it might mean for our local housing market. Start of 2023: A Steady Descent Early Year Trends: The year kicked off with a gradual rate decrease, starting from 6.48% in January and slightly dipping over the following months. Signs of Stability: This period hinted at a stabilizing market, offering a glimmer of hope for buyers and sellers in the Tahoe area. Mid-Year Surge: Rates Climb Summer Spike: As summer approached, the rates started climbing, peaking at a daunting 7.79% in October — the highest point in 2023. Market Response: This surge impacted the housing market, with potential buyers re-evaluating their plans amid these rising costs. Year-End Relief: A Downward Trend Cooling Off: The end of the year brought some relief , with rates gradually declining to close the year around 6.61%. 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Specifically, the Fed plans to decrease its holdings by allowing up to $60 billion in Treasury securities and $35 billion in agency mortgage-backed securities to mature monthly without reinvestment. This approach is part of the broader economic measures to stabilize inflationary trends. What this means for you as a homebuyer: The Fed's actions could lead to more stable and potentially lower mortgage rates, making it a more favorable time to consider purchasing a home. Together, we'll explore what this means for mortgage rates in 2024, especially for those in the Lake Tahoe area. Federal Reserve's Influence on Mortgage Rates Rate-Hike Pause: This decision in late 2023 suggests a shift towards stabilizing the economy. Indirect Impact: The federal funds rate indirectly affects mortgage rates. This pause is expected to bring some predictability to home financing. 2024 Mortgage Rate Forecasts Analysts predict a stabilization or slight decrease in rates, a positive sign for borrowers. 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While 2024 might offer promising conditions for refinancing, it’s essential to consider your personal circumstances and the broader market context. A Look Ahead at 2024's Mortgages in Lake Tahoe Our recommendation on everything discussed in this article, especially for our Lake Tahoe region, is to be cautiously optimistic. The anticipated stability in mortgage rates should be a positive signal for both the California and Nevada sides of Lake Tahoe. Potential homebuyers might find more predictable and slightly more affordable borrowing conditions, opening up more desirable purchasing or selling windows for the first time in a few years. For homeowners thinking of refinancing, this also could be your year to lock in a better rate. If you're considering your mortgage options or have questions about financing or refinancing in the Lake Tahoe area, reach out to Maggie for any guidance or information you need — let's make your Tahoe home dreams a reality in 2024!