When home values begin to decline, it‘s best to take action before lenders and home insurers start narrowing their allowances. This is especially true in cases where refinancing and home lines of credit are concerned.
Many lenders require that a potential borrower has at least 20 to 25 per cent equity in the home from which they intend to draw a Home Equity Line of Credit (HELOC). In other words, if housing values fall and you lose, for example, five per cent of the equity you have amassed, you may also lose your ability to qualify altogether.
The same scenario applies to a mortgage refinance. The maximum amount one can refinance is 90 per cent of the loan to value ratio, or 80 per cent LTV on an uninsured loan.
Both refinances and HELOCs are financed by a lender based on the property value determined in a professional appraisal. If you feel that the appraised value of your property would be higher now than in six months, and your budget requires you to access equity to free funds or to consolidate high interest debt, it will be in your greater interest to act sooner than later.
Falling housing prices can also mean a rise in interest rates. To achieve the lowest mortgage rates possible, you will want to act before they begin this plausible ascent.
