Freddie Mac wants to offer second-lien mortgages to help homeowners locked into lower-interest-rate mortgages access their home equity. Freddie Mac's proposal would allow homeowners to access their home equity while keeping their low interest rate on their current loan. It could potentially be a cost-effective alternative to cash-out refinances at today's higher rates, according to the Urban Institute.
The Mortgage Bankers Association said that the so-called locked-in effect has left homeowners with cheaper mortgages unwilling to sell and/or prepay their first mortgages and looking for a way to access the housing wealth built up in their properties. Banks have stepped up their second-lien financing products to meet this growing demand. Familiar products like home equity lines of credit have always been available.
The average U.S. homeowner gained approximately $24,000 in equity during 2023, with Rhode Island, New Jersey and Massachusetts registering the most significant gains, all at $50,000 or more, according to CoreLogic. Record home prices are why home equity levels have risen nationwide, leaving most Americans in a good position. U.S. home prices rose 6.6% between the first quarter of 2023 and the first quarter of 2024, according to the Federal Housing Finance Agency House Price Index.
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