High interest rates pose a challenge when tapping home equity, which is currently close to a record high.

• Near a record high, homeowners with mortgages possess $17 trillion in home equity, according to CoreLogic.
• High interest rates are making it challenging to access housing wealth, financial advisors noted.
• Homeowners have several options for managing their finances, including a home equity line of credit, a reverse mortgage, or selling their house.

High interest rates may make it difficult to tap into home equity, which is currently at near all-time highs, according to financial advisors.

In Q1 2024, U.S. mortgage holders' total home equity surpassed $17 trillion, almost equaling the record set in Q3 2023, as per new data from CoreLogic.

The average equity per borrower increased by $28,000 from a year earlier, resulting in a total of about $305,000, according to CoreLogic. This represents an almost 70% increase from the $182,000 equity per borrower before the Covid-19 pandemic, as stated by chief economist Selma Hepp.

U.S. homeowners with and without a mortgage have a combined total home equity of $34 trillion.

A significant increase in home equity is mainly attributed to an increase in home prices, according to Hepp.

Some individuals took advantage of the low interest rates during the pandemic to refinance their mortgage, potentially accelerating their debt repayment, according to her.

According to Lee Baker, founder, owner, and president of Apex Financial Services in Atlanta, people who have owned their homes for at least four or five years are feeling content and financially secure on paper.

High borrowing costs make it complicated for Baker, a certified financial planner and a member of CNBC's Advisor Council, and other financial advisors to access that wealth.

CFP Kamila Elliott, co-founder of Collective Wealth Partners and a member of CNBC's Advisor Council, stated that some options that were appealing two years ago are no longer attractive due to the significant increase in interest rates.

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Home equity line of credit

Tapping housing wealth is typically done through a home equity line of credit (HELOC), according to Hepp.

Homeowners can borrow money using a home equity line of credit (HELOC), which is typically repaid over a fixed period. Interest is charged on the remaining balance.

According to Bankrate data from June 6, the average HELOC interest rate is 9.2%. Unlike fixed-rate debt, HELOC rates are variable and can change. Homeowners may also opt for a home equity loan, which typically have fixed interest rates.

According to Freddie Mac, the rates on a 30-year fixed-rate mortgage are approximately 7%.

What to expect from the housing market this year: A 20% down payment is not required to buy a house.

While HELOC rates are higher than typical mortgage rates, they are significantly lower than credit-card interest rates, which average around 23% for account holders with a balance, according to Federal Reserve data.

According to Bank of America, borrowers can typically borrow up to 85% of their home value (minus outstanding debt).

To pay off their high-interest credit-card debt, homeowners can use a HELOC, but they must have a specific plan to pay it off quickly, ideally within a year or two, Elliott advised.

Instead of making the minimum monthly debt payment, it might be better to pay more than the minimum amount due to avoid accruing interest and taking longer to pay off the debt.

Homeowners can use a HELOC instead of a credit card for home repairs or improvements, as explained by Elliott. Additionally, those who itemize their taxes may be able to deduct their loan interest on their tax returns, she added.

Reverse mortgage

Home equity can be accessed by older Americans through a reverse mortgage.

A reverse mortgage is a loan that utilizes home equity, but instead of paying it off monthly, the balance increases with accumulated interest and fees.

It is advisable to consider a reverse mortgage for individuals whose significant assets are invested in their home, experts suggested.

Another potential source of retirement income is if you were late getting the ball rolling on retirement savings, Baker said.

The Consumer Financial Protection Bureau states that a home equity conversion mortgage (HECM) is the most common type of reverse mortgage, which is accessible to homeowners aged 62 and above.

A reverse mortgage can be obtained as a lump sum, line of credit, or monthly installment. It is a non-recourse loan, meaning that if you pay property taxes, maintenance expenses, and use the home as your primary residence, you can remain in the house indefinitely.

Borrowers can generally tap up to 60% of their home equity.

According to the CFPB, the loan will eventually have to be repaid by the homeowners or their heirs, typically through the sale of the home.

If there was no reverse mortgage, the heirs would have been responsible for funding the borrower's retirement income, which they would have been paying out of pocket, according to Elliott.

Sell your home

Historically, the primary benefit of having home equity was accumulating funds for a future home purchase, Hepp stated.

People have traditionally advanced in the housing market through historical means, as stated by her.

Homeowners with low fixed-rate mortgages may feel restricted from moving to a new home due to the high rates associated with a new loan.

Baker stated that while moving and downsizing are possibilities, "the math doesn't really work in their favor."

"Their home value has increased, as has everything else in the surrounding area," he stated. "If you're looking for something new, you won't be able to do much with it."

Cash-out refi

Though a cash-out refinance could be an option, Elliott advised that it should be considered a last resort.

She stated that she did not know anyone who was recommending a cash-out refi at the moment.

A new, larger mortgage replaces your existing one, with the borrower receiving the difference as a lump sum through a cash-out refi.

A borrower with a $500,000 home and a $300,000 mortgage may refinance for a $400,000 mortgage and receive $100,000 in cash.

Elliott stated that if they were refinancing at a higher interest rate, their monthly payments would likely be significantly higher than their current mortgage.

"Baker advised homeowners to carefully analyze their options, emphasizing the importance of considering the financial implications, as the decisions they make can significantly impact their financial stability."