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- 2 million metro Chicago homeowners have $161 billion in equity they can tap at affordable rates for home improvement projects or to pay off costlier debt
- Home values in the Chicago market are up 27 percent since 2012, bringing average “tappable equity” per home to $74,000
- Cashing out home equity without comparing actual mortgage interest rates could cost homeowners $12,000 or more in unnecessary interest charges
Rising home values mean more than 2 million Chicago-area residents can tap the equity they’ve built in their homes to finance home improvement projects at affordable interest rates, or pay off high-interest credit card or student loan debt.
With home values up 27 percent from their 2012 bottom, these homeowners now have an average of $74,000 in “tappable equity” — the amount they can access while still retaining an ownership stake of at least 20 percent in their homes.
Even with interest rates 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 that 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 $250,000 30-year loan saves homeowners over $12,000 over the life of the loan.
How Chicago stacks up to other markets
The total amount of tappable equity available to metro Chicago homeowners dwarfs other Midwestern metros including Minneapolis-St. Paul ($75 billion), Detroit ($51 billion), Cincinnati ($22 billion), Columbus ($21 billion) and Milwaukee ($16 billion).
With $161 billion in total tappable equity, Chicago is ranked eighth in the nation, ahead of Boston, Dallas, Miami, and Denver (see story, “What Americans Should Know Before Cashing out $6 Trillion in Home Equity”).
While runaway price appreciation on the coasts has driven the median home values in some markets above $1 million, homes in the greater Chicago market remain relatively affordable.
Since hitting a low of $159,200 during the housing downturn, Zillow estimates the median home value in the metro Chicago area has climbed 27 percent, to $219,100. That’s an average gain of $59,900 per home, boosting tappable equity to $74,000, according to a separate analysis by mortgage data aggregator Black Knight.
The metro Chicago market — a 7,200 square-mile area with a population of 9.5 million that stretches into southern Wisconsin and northwest Indiana — remains affordable, on whole. But that doesn’t mean there aren’t plenty of pricier enclaves.
The 10 priciest housing markets in the metro Chicago area
- Kenilworth ($1.36M median home value)
- Hinsdale ($978,500)
- Glencoe ($976,400)
- Lake Forest ($815,400)
- South Barrington ($756,200)
- Oak Brook ($755,800)
- Barrington Hills ($715,500)
- Wilmette ($666,400)
- Northfield ($658,500)
- Riverwoods ($638,000)
Estimated median home values as of August, 2018. Source: Zillow Home Value Index.
While many coastal cities generate alarming headlines about soaring home prices, Chicago boasts a healthier balance of home price appreciation and affordability. According to World Business Chicago, much of the region’s success can be attributed to its economic diversity. Not only do more than 400 major corporations call Chicago their home, but no single industry employs more than 12 percent of the workforce.
As is the case on the West and East coasts, the strong job market has helped spur demand for homes in Chicago and the surrounding region. After peaking at 12.2 percent in 2010, the unemployment rate has been falling steadily ever since, hitting a low for the 21st century of 3.4 percent this May.
Home values turned a corner in 2012 and, for the last six years, unemployment’s been falling while home prices rise.
Tapping equity responsibly
Of course, falling unemployment and rising home prices doesn’t mean that homeowners are immune to ups and downs in the economy. Pulling too much cash out of a home — or putting too little down when purchasing it — can put homeowners at higher risk of foreclosure in a downturn.
But homeowners who keep at least a 20 percent 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.
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Last year, Americans tapped $92.1 billion in home equity — either through cash-out mortgage refinancing ($69.7 billion), or refinancing that paid off a second mortgage or home equity line of credit ($22.4 billion). That’s more than double the $42.5 billion in equity tapped through 2012 mortgage refinancings.
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.
