It’s no secret that home values have risen considerably from where they were just a couple years ago. But what does this mean for you as a homeowner? Depending on your specific situation, there are many different ways this could impact you and your finances.
You May Be in a Better Position to Sell
Let’s start with the most obvious one. If you’re on the fence or have been waiting to put your home on the market, its value can be a strong influential factor in your decision. Check out this article from MarketWatch, which argues that 2014 is the year to sell your home.
But what if you want to stay put? Then read on because the next sections are for you!
A Cash-Out Refinance May Be a Good Option
If your home value has gone up, you may be able to turn some of that equity into cash. A cash-out refinance allows you to refinance into a new mortgage for more than what you currently owe. The benefit? You can use the difference for pretty much anything.
This may be a good option if you’re in immediate need of some extra money, if you want to pay off high-interest credit card debt or if you’re just looking to make some home improvements to increase the value of your home … the possibilities are endless!
You May Be Able to Get Rid of Your Mortgage Insurance
If you pay private mortgage insurance (PMI) for your conventional loan, or a mortgage insurance premium (MIP) for your FHA loan, an increase in your home value might mean extra savings. If your home’s value has gone up, your loan-to-value (LTV) ratio may have changed, so you might be able to cancel your PMI.
You may be able to request cancellation of your PMI once the unpaid balance of your loan has reached 80%, as long as you meet the following criteria:
- You must have a good payment history;
- The value of your home must not have declined below its original value; and
- There are no other liens on the property, such as a second mortgage.
If your PMI is not canceled at 80%, your servicer must automatically terminate it when your LTV ratio is scheduled to reach 78% based on your initial amortization. This does not apply to investment properties or lender-paid mortgage insurance (LPMI), however.
Also, if you got an FHA loan prior to June 3, 2013, you only have to pay MIP as part of your monthly payment for 5 years or until your loan-to-value ratio reaches 78% (whichever is longer). However, as of June 3, a change went into effect that requires MIP to be paid for 11 years if your original LTV is 90% or lower, or for the life of the loan if your LTV is over 90%.
Your Property Taxes May Increase
Last (but not least), as home values rise and fall, property taxes usually follow suit. If your mortgage lender manages your taxes and insurance for you through an escrow account, your monthly mortgage payment could increase if you need more money in your account to cover your increased property taxes.
If you know there’s a good chance your property taxes will increase, you can make additional payments toward your escrow account at any time during the year to alleviate the potential escrow shortage. Watch this video to learn more about escrow shortages.
Questions? Concerns about rising home values? Let us know in the comments below! Looking to refinance? Get started on your refinance with a Home Loan Expert today!
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