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Home Equity Could Reach All-time High in 2018

If you’re a homeowner or investor, I’ve got good news about the new year: 2018 could see home equity value reach an all-time high in the United States this year.

Even if it doesn’t, homeowners are already sitting on trillions in cash. The amount of home equity borrowers now have at their disposal reached an all-time high in the third quarter of 2017: $5.5 trillion in tappable equity, according to industry watcher Black Knight Data & Analytics. That’s a gain of $3 trillion in just five years.

Today, approximately 80 percent of homeowners (including investors) now have equity they can use. That much cash could fuel the economy in 2018, but only if homeowners put it to use. Traditionally, there are two main methods of turning home equity into cash. The first is to take out a second loan—either a home equity mortgage, which is a lump sum, or a home equity line of credit (HELOC), which is a bit like a checking account on your home.

Unfortunately for homeowners, HELOCs recently lost a major benefit. Under the new Republican tax law, interest paid on this kind of loans is no longer deductible. Borrowers used to be able to deduct interest paid on up to $100,000 in home equity loan debt. No longer.

Fortunately, there is another option: the cash-out refinance. There are many advantages to this equity option. In addition to potentially securing you a more favorable interest rate, a refinance allows borrowers to skip up to two months of mortgage payments in many cases. The lump-sum infusion of cash can also go a long way toward paying off the new taxes that you may owe, let alone your credit card bill.

Mortgage rates are currently lower than they were a year ago, and cash-out refinances are growing in popularity. That growth will likely continue under the new tax rules. Cash-outs now account for 62 percent of all refinances. With homeowners now sitting on $5.5 trillion and with HELOCs less deductible, smart borrowers and investors are likely to capitalize on lower interest rates before it’s too late.

With cash-out refinances soon reach levels reminiscent of the 2005 peak of the housing boom? It’s too soon to tell for sure. Borrowers and lenders alike are showing far more restraint these days. Expect the highest number of U.S. mortgage refinances in years in 2018, though—the conditions are better than they’ve been since the crash.