The Average Mortgage Holder Has This Much in Equity. How Do You Stack Up?

Are you sitting on a pile of home equity?

Since 2021, prospective home buyers have been grappling with record-high home prices -- and struggling to break into the housing market because of them. But while higher home prices are a bad thing for buyers, they're a great thing for property owners. Existing homeowners can benefit from having high levels of equity -- even if they have no plans to sell.

What is home equity?

You might hear the term "home equity" used a lot, and it refers to the portion of your home you own mortgage-free. If you have a home worth $300,000 with a $200,000 mortgage balance, it means you have $100,000 of equity.

Home equity is way up

Since home values are so high these days, home equity levels have risen on a national level. The average mortgage holder now has around $185,000 in home equity, according to data firm Black Knight.

That said, you may be sitting on more or less equity, depending on the property you own and the balance you have on your mortgage. If you live in a starter home, for example, you may be looking at less equity. Similarly, if you recently bought a home and didn't make a very large down payment, you may have limited equity in your property.

But as we just learned, it's pretty easy to figure out how much equity you have in your home. All you really need to do is determine its current market value (which you can find by looking at sites like Zillow or talking to a local real estate agent), subtract the amount of money you owe on your mortgage, and voila -- you've got your number.

What to do with your home equity

Once you've figured out how much home equity you have, the big question becomes what to do with it. And to be clear, "nothing" is a perfectly acceptable answer.

Just because you have a nice amount of equity in your home does not mean you have to put it to work. If you don't tap that equity, you may end up looking at a larger profit when the time comes to sell your home.

But if you do have a need for money, then there are several options you can exercise for tapping your home equity. For one thing, you can borrow against it via a home equity loan or line of credit (HELOC). Both options allow you to borrow money for any purpose -- it doesn't have to be home-related.

For example, if you have a large amount of credit card debt hanging over your head that you're paying 18% interest on, you might manage to take out a home equity loan with an interest rate in the 5% to 7% range. That could make your debt much easier to repay.

You can also look into a cash-out refinance, which allows you to swap your existing mortgage for a larger one and use that excess money as you choose. Going back to our example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you might decide to do a $240,000 cash-out refinance. Of that, $200,000 would go toward paying off your initial mortgage, and you'd get the remaining $40,000 in cash to use as you please.

Borrowing against your home equity can be tempting, but proceed with caution when doing so. If you fall behind on your loan payments, you could risk losing your home.

Take advantage while you can

Right now, home equity levels are higher than they've been in a long time. Once home prices start to decline, equity levels could drop, so if you've been thinking about tapping your home equity to renovate, repair your home, or pay off costlier debt, now may be a good time to get moving. Once home equity levels decline, you may have less leeway to borrow.

Plus, we don't know if interest rates on home equity loans, HELOCs, and refinances will climb in 2022. Rates are pretty competitive right now, though, which is another reason to consider tapping your home equity sooner rather than later.