Housing News

Homeowners Have $35.8 Trillion in Equity. Could Yours Help Lower Your Mortgage Payment?

Homeowners may be sitting on an opportunity to lower their monthly housing costs without realizing it.

Americans now hold about $35.8 trillion in home equity, representing roughly 72% of the value of residential real estate, according to the latest NAF Insights report by New American Funding Principal Analyst Ryan Schoen.

For homeowners who purchased a home using private mortgage insurance (PMI), rising home values and years of mortgage payments may have pushed their equity high enough that they could potentially have PMI removed.

“Those cancellations are not pocket change,” wrote Schoen. “Across the market, that is real cash flow that can be redirected to principal, renovations, or simply lower housing costs.”

Depending on the mortgage balance and cost of PMI, eliminating it could potentially save a homeowner about $167 to $750 a month, according to Schoen’s calculations.

Here’s how homeowners can find out whether they may qualify.

Why homeowners have so much equity

Homeowners have benefited from rising property values while also building equity as they pay down their mortgages.

Owner-occupied real estate is now worth about $49.8 trillion, while mortgage debt outstanding is about $14 trillion, according to Federal Reserve data cited by Schoen.

The result is a sizable financial cushion for homeowners, including some who may still be paying PMI.

Could your equity help you get rid of PMI?

Homebuyers who use a Conventional mortgage and put down less than 20% are often required to pay PMI.

Federal law generally allows homeowners with eligible mortgages to request PMI cancellation when their principal balance is scheduled to reach 80% of the home’s original value, provided certain requirements are met. PMI generally automatically terminates when the scheduled balance reaches 78% if the borrower is current on payments.

But appreciation may give some homeowners another path to requesting PMI removal before reaching that point.

Consider a homeowner who purchased a $500,000 home with 5% down, resulting in an original mortgage of about $475,000.

In an example analyzed by Schoen, the home’s estimated value later rose to about $570,671 while the mortgage balance declined to roughly $456,000.

That would leave the homeowner with more than $114,000 in equity and a mortgage balance equal to about 80% of the home’s current value.

Reaching that threshold through appreciation does not automatically eliminate PMI. Requirements vary, and the mortgage servicer may require an appraisal or another acceptable property valuation before approving cancellation.

Homeowners who have seen significant appreciation can contact their mortgage servicer to find out whether they qualify and what documentation is required.

These rules generally apply to PMI on Conventional mortgages. Federal Housing Administration (FHA) loans have mortgage insurance premiums with different cancellation requirements.

How much could homeowners save?

For homeowners who qualify, removing PMI could free up hundreds of dollars in their monthly budgets.

On a $400,000 original mortgage, PMI costing 0.5% annually would be about $167 a month, according to Schoen’s analysis. At 1%, it would cost about $333 a month, while a 1.5% rate would bring the cost to $500.

On a $600,000 mortgage with PMI costing 1.5% annually, removing PMI could save $750 a month.

Even $333 a month adds up to nearly $4,000 a year that could go toward other expenses, savings, renovations, or paying down the mortgage.

Could homeowners continue building equity?

The Federal Reserve’s latest outlook offers some encouraging signs for the housing market.

Fed officials expect the economy to continue growing over the next few years, unemployment to remain relatively low, and inflation to gradually cool. That economic stability could help support housing demand and home values.

“The committee sees a soft-landing path that still leaves room for lower rates over time, but not a rapid descent,” wrote Schoen.

Home prices will vary by market. But continued price resilience could help homeowners accumulate additional equity, potentially giving them more financial options in the future.

What else can homeowners do with their equity?

Homeowners may also be able to put their equity to work for other financial needs.

Qualified homeowners may have options including a home equity loan, home equity line of credit (HELOC), or cash-out refinance. They could use the funds for renovations, debt consolidation, or other major expenses.

Borrowing against equity comes with costs and increases the amount secured by the home, so homeowners should consider how a new loan fits into their finances.

For homeowners still paying PMI, however, accessing equity may not be necessary to benefit from it. Contacting your mortgage servicer to find out whether you qualify to remove PMI could be enough to turn some of the equity you’ve already accumulated into monthly savings.