The real estate market can fluctuate quite a bit and sometimes you find yourself in a situation where your home value has suddenly jumped up quite a bit over a short period of time. This might inspire you to sell, sell, sell, but that might not be the best option all of the time, and adding more value to your home might be a better option. If the value of your home has gone up without warning and you’re wondering what it means for you then keep reading to see what to do when your home value goes through the roof.
1) Adjust your mortgage and insurance rates
If you still have a mortgage to pay on your home then you might be able to adjust some of the payments you’ve been making if you’ve found that your home value is worth more than the bank estimated. If you hold enough equity in your home, you can actually apply to have your PMI (private mortgage insurance: a payment usually made in combination with your mortgage to protect the bank if you walk away from the loan) canceled completely which would save you quite a bit over time.
To do this you need to pay to have your home appraised (this usually costs around $500) so you can prove that it is worth more. The appraisal will also help you when it comes to reassessing your insurance so it’s worth it in the long run. If you are paying the same insurance rate for a lower value home and you end up with major home damage, your policy might not cover as much as it should when it comes to rebuilding which could leave you in a sticky spot.
2) Use your new equity to make improvements
Taking equity out on your home is a great idea if you are looking to keep making improvements and increasing its value. There are a few ways you can use your home’s new value to get some cash in your pocket including a HELOC (Home equity line of credit: a low rate loan that’s based on the difference between your home value and your mortgage balance), a cash-out refinance (The bank determines the amount of equity your home has and allows you to take it out in cash) or you might be eligible for a reverse mortgage (a loan that allows the homeowner to access the unencumbered value of the property. These loans are for those who are over 62).
You need to make sure that the money you’re taking out is being put back into a source that will give you more income later, like buying a rental property or adding some complex improvements to your existing property. This is the best way to make sure that the money isn’t wasted and it’s a great way to make some much-needed improvements for free. Make sure you’re not taking out all of it because a crash can happen unexpectedly (which happened in both 2007 and 2008 leaving homeowners high and dry when prices dropped) so only take out what you need.
3) Sell it off
Selling is the most obvious move you can make when your home price soars and it’s a rare opportunity that might not come along again. The housing market can dip and dive all the time so if you choose to sell right now, you’re taking the chance that the market won’t creep up even higher within a few years. Your choice to sell will largely depend on many factors like how much longer your mortgage is, how much more your home is worth and where you are in your life.
A real estate agent will likely encourage you to sell while the market is hot so make sure you reach out to a few other experts in their fields (like a mortgage broker or a financial expert at your bank) to get their opinion on what your decision should be. We already talked about how you can choose to make improvements on your home by taking out equity and possibly selling it for more in the future but if you are ready to move on then selling is the ideal choice.
No matter what choice you decide to make about your home’s new value, do your research and base it on what is the best for your current situation. If you see this as your “forever home” and want to make sure it’s in the best shape it can be then talk to your bank about your equity options but if you want to move upward and onward then look into putting it on the market. Either way, using the newly increased value of your home to your advantage is a great way to make some money or make some major home upgrades.
