Home equity has hit a record high. How can you best take advantage of your home equity gains?

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As home prices continue to rise rapidly, many Americans are sitting on a pile of equity in their homes. Indeed, research firm Black Knight found that tapable home equity hit a record high in the third quarter of 2021. And this is happening because the home equity loan rates are quite low. For some, this means taking out a home equity loan (Check out the lowest rates you can qualify for here) or a HELOC (Check out the lowest rates you can qualify for here) for things like home renovations, and others that property is for sale.

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Businesshala Picks recently got an interesting question from a reader looking for something different: Lock in a profit on your home before home values ​​drop, without having to sell or take out a loan. Here’s his question:

A recent home sale in my neighborhood indicates that my wife and I are sitting on a lot of equity in our home – more than $300,000 after our mortgage balance. We plan to sell in a few years but can’t go ahead yet. Can we lock in these gains before home prices drop?

And here’s what the experts told us: A strategy to capitalize on a big bump in home equity typically involves selling assets — which you just don’t want to do — or borrowing against your home equity. And while there are some ways to hedge your home value without moving, the options range from a bit complicated to extremely complex.

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an option? You can find futures contracts offered by the Chicago Mercantile Exchange against the Home Price Index. Wealth Management Magazine’s alternative investment editor Brad Ziegler gives one example. using a contract To protect against loss in home value. But there are many costs, including opening a larger account with a futures trader, and if house prices move up, it is possible to lose money with a futures contract. So most experts say, it is not for individual homeowners. “Any professional who does not broker housing futures contracts would say that housing futures were suitable for individual homeowners,” Ziegler said. And John Dolan, an independent market maker for the CME Case Schiller Home Price Index, who also runs Home Price Hedging Fund LLC, said that, “This is something of a commercial interest or a very large well-heeled real estate market.” Estate investor who understands the intricacies of this very illiquid market.”

Kurt Fillmore, founder and president of Wealth Track (CQ) Financial in Bingham Farms, Michigan, came up with a simple hedging approach for one of his clients. Believing that if home prices fall, the publicly traded homebuilder’s stock price would fall, Fillmore purchased a one-year put option, allowing his client to buy shares of the homebuilder’s shares at a certain price. allowed to sell. If home prices fall and push down the price of home builder shares, clients can buy cheaper shares and sell them at the higher price set in the option. “It wasn’t a big bet,” Fillmore said. “It was $1,000 to hedge and the house went up in price, so there was no problem.” But then, it’s complicated.

So the best bet might be to turn to the more common uses for home equity loans – Check out the lowest rates you can qualify for here – Which are at very low rates right now. Using equity to pay off credit card balances and other high-rate debt gives you an immediate profit on the difference between the two rates. Another option is to use equity cash to improve the value of the home or, if you can be a disciplined long-term investor, you can take out the cash to invest.

Your best bet is simply to increase the value of your home, said Harry Glanz (CQ) of Capital Mortgage Funding in Southfield, Michigan. “In three more years, you’ll have paid off three more years of principal on your mortgage, which can offset any loss in value,” Glanz said. “When you lay your head on your pillow at night just remember that you haven’t taken any new risks and you’ll still walk away with a lot of equity.”

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