- 1.4 million metro Washington, D.C. area homeowners have $171 billion in equity they can tap at affordable rates for home improvement projects or to pay off costlier debt
- Home values in the Washington, D.C. market are up 29% since 2012, bringing average “tappable equity” per home to $121,000
- Cashing out home equity without comparing actual mortgage interest rates could cost homeowners $21,000 or more in unnecessary interest charges
Rising home values mean more than 1.4 million homeowners in and around the nation’s capital can tap the equity they’ve built in their homes to finance home improvement projects at affordable interest rates, or pay off high-interest debt like credit cards or student loans.
With home values up 29% from their 2012 bottom, these homeowners now have an average of $121,000 in “tappable equity.” That’s the amount of cash they can access while still retaining an ownership stake of at least 20% in their homes.
Although interest rates are once again on the rise, mortgage rates remain low by historical standards, and a growing number of homeowners are tapping their equity through cash-out mortgage refinancing.
But research by Freddie Mac shows most borrowers take out a mortgage without getting actual rates from multiple lenders, putting them at risk of paying lenders thousands in unnecessary interest charges.
Even a quarter point interest rate reduction on a typical $400,000 30-year loan can save a homeowner more than $21,000 over the life of the loan.
How Washington, D.C. stacks up to other markets
The total amount of equity available to homeowners in and around the nation’s capital tops exceeds Midwestern metros like Chicago ($161 billion), Minneapolis-St. Paul ($75 billion), and Detroit ($51 billion). On the East Coast, Washington D.C. is second only to the greater New York City market, where homeowners have access to $401 billion in tappable equity.
Looking at the top 50 U.S. markets for tappable equity, the metro Washington, D.C. area ranks sixth in the nation, ahead of markets like San Diego, Dallas and Phoenix (see story, “What Americans Should Know Before Cashing out $6 Trillion in Home Equity”). That’s largely due to the recent surge in home values.
Since hitting a low of $308,900 during the housing downturn, Zillow estimates the median home value in and around the nation’s capital has climbed 29%, to $397,800. That’s an average gain of $88,900 per home, boosting tappable equity to $121,000, according to a separate analysis by mortgage data aggregator Black Knight.
The metro Washington D.C. market — a 6,247 square-mile area with a population of 6.2 million that stretches into parts of Virginia, Maryland and West Virginia — has become less affordable to many families, particularly in some pricier submarkets.
The 10 priciest housing markets in the metro Washington, D.C. area
- Travilah, Md. ($1,235,400 median home value)
- Brookmont, Md. ($1,053,000)
- Great Falls, Va. ($1,047,600)
- McLean, Va. ($949,400)
- Chevy Chase, Md. ($944,100)
- Cabin John, Md. ($917,100)
- Dunn Loring, Va. ($883,700)
- Bethesda, Md. ($868,700)
- Potomac, Md. ($867,500)
- Vienna, Va. ($782,600)
Estimated median home values as of Sept. 30, 2018. Source: Zillow Home Value Index.
Thanks to the availability of government jobs, the metro Washington, D.C. market fared better during the 2007-2009 recession than many markets that are more dependent on manufacturing and consumer services.
After peaking at 6.7% in 2010, the unemployment rate in and around the nation’s capital has been falling steadily ever since, dropping below 4% in 2012 and hitting a 21st century low of 3.3 in May.
Home values rebounded in 2012 and, for the last six years, unemployment has been falling while home prices rise.
Tapping equity responsibly
Falling unemployment and rising home prices doesn’t mean homeowners can forget about ups and downs in the economy. Pulling too much cash out of a home can put homeowners at higher risk of foreclosure in a downturn.
But homeowners who keep at least a 20% stake in their homes when refinancing have enough of an “equity cushion” that lenders typically won’t require them to obtain private mortgage insurance.
Undertaken responsibly, a cash-out refinancing can provide homeowners with an affordable source of funding for home improvement projects or other big-ticket expenses like college or unexpected medical bills. Many homeowners are also tapping equity in their home to get rid of high-interest credit card or student loan debt.
How to compare mortgage rates
For homeowners who are thinking about cashing out some of their equity by refinancing, it pays to compare mortgage rates.
Until recently, it’s been quite a chore to do that online. Today, there are three main avenues for exploring mortgage rates online:
- Single-lender websites
- Traditional rate comparison sites
- Modern mortgage marketplace
Some single-lender websites that facilitate “quickie mortgages” have reduced the hassle of applying for a loan. But they don’t provide information on rates available from other lenders, and may even discourage consumers from shopping for a mortgage.
The main goal of many traditional rate comparison sites is to convert consumers into “leads” and sell them to lenders. Since the rates they generate are often based on self-reported credit scores and little or no underwriting is performed, they can be misleading.
Credible.com is a modern mortgage marketplace that’s integrated with credit bureaus and lenders, so consumers can request actual rates from top mortgage lenders. Using Credible, consumers can:
- Compare actual rates in 3 minutes (not ranges or estimates)
- Shop and close “on platform,” like booking an airline ticket or buying essentials on Amazon
- Save time and avoid frustration with streamlined, digital origination process
- Consult with Credible’s licensed loan officers if needed
While strong home equity growth presents an opportunity for many homeowners to meet financial goals like paying down costlier debt or improving their homes, they should make sure they’re not overpaying when they refinance their mortgages.