How to Protect Your Home’s Value Now Against Future Declines
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Here's your Money Briefing for Friday, May 20th. I'm J.R. Whelan for The Wall Street Journal. Mortgage rates may be creeping higher, but that hasn't slowed the demand for homes, which continues to outpace supply. And that pushed the median existing home price to another new record last month. That's good news for homeowners who put the for sale sign out on the front lawn. But where does that leave homeowners not ready to sell, but who fear home values will decline before they're ready to move?
This isn't something you want to do with all of your home equity. It's kind of like buying an insurance policy. And people feel that the offset, losing a little bit of the gain, is worth it for the protection on the downside.
Wall Street Journal contributor Brian O'Connor has been talking to financial professionals about strategies for leveraging the equity in your home to protect against price declines. We'll talk to him about those strategies and the risks involved after the break.
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Average home prices in the U.S. once again hit a new record last month, just shy of $400,000.
How are record-high home prices affecting homeowners who aren’t ready to sell?
That could mean a hefty return for homeowners ready to sell. But those who aren't ready to put their home on the market may worry that they'll miss out. Wall Street Journal contributor Brian O'Connor has been looking into this issue, and he's here with ways that homeowners can lock in their home value now. Brian, thank you so much for being with us.
Well, thank you for having me on today.
You know, Brian, it seems the most obvious way to build more equity in your home is to simply keep making your monthly payments, right?
That's right. That is exactly the best way. And if you're not worried about this and it's not a concern for you, the best thing you can do is keep making your payments because every payment you make is building equity and you can sleep soundly at night and not worry about it a bit.
But some financial experts have talked about more aggressive and more risky ways that people can invest their home equity in order to essentially hedge against a decline in the value of their property. One of those is using home equity to improve their overall household debt. How would that work?
Well, this is an old tried and true approach that personal finance experts have discussed for years. Basically, your return on your investment is the difference between your, say, a high interest credit card rate, like 18 or 21%, And if you can borrow against your home equity at, say, 4.6%, your return is the difference in the two rates. So if you can borrow at 4.6%, retire the 21% credit card, you're getting that instant return of paying a lot less interest if you don't stretch it out over time. And also, more of your payment goes to the principal, so you're paying it off faster. And that's a pretty simple thing. You don't need anybody's permission. You don't need to do anything extra. You just need to tap that equity through a home equity loan and you're all set.
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