Key insights
- Rising values can mean more to pay at tax time, so some homeowners dread receiving their increased Estimated Market Value.
- Even if you're not selling now, a higher home value can benefit you in various ways.
- Wishing for a lower home value is counter-intuitive; if you ever need to sell in a hurry, you'll want your home value to be significantly higher than what you paid for it.
When home prices rise, as they have been for the last few years across Minnesota and western Wisconsin, many homeowners may become frustrated by the increase in their annual property taxes. While it's not expected that you celebrate a higher tax bill, there are various reasons that homeowners should accept rising values as a good thing.
Here are insights you can use when assessing your home's rising value and how it affects you.
Short-term benefits of a higher property value
If you didn't put down a hefty down payment when you purchased your home, you may pay mortgage insurance — either private mortgage insurance (PMI) on a conventional loan, or mortgage insurance premium (MIP) on an FHA loan. These insurance payments add up; borrowers can pay hundreds of dollars per year on mortgage insurance for their loan.
These insurance payments are based on the level of risk the lender is taking to loan you money. When your home's value rises, the loan becomes less risky to the lender because its loan-to-value ratio decreases.
Conventional loan borrowers can take advantage of their rising property value by canceling their PMI when their loan-to-value ratio reaches 80 percent; it will automatically be canceled when the loan-to-value ratio reaches 78 percent. (FHA borrowers, unfortunately, are not able to take advantage of a similar cancellation. They will continue to pay MIP for the entire lifetime of the loan.)
In short, a small uptick in your property taxes may signify that your home's value (and equity) is rising — and allow you to bank more each month by canceling your mortgage insurance.
Medium-term effects of a higher property value
Over the last few years, the headlines have focused a lot on the rising property values across the country and in Minnesota and western Wisconsin. On average, homeowners saw their property values increase by 20% in the early months of 2021! That amounted to, on average, $33,000 in equity for the average homeowner. Of course, most folks don’t have tens of thousands of dollars in cash sitting around to pay off bills, take on renovations or fund a new car or college student.
While many homeowners hope to wait until they sell for a big “cash-out,” many are starting to recognize that their increasing home value and home equity gives them some financial options they can explore in the here and now.
There are a variety of options to look at — from tapping into home equity to receive a lump sum payment, to getting a revolving line of credit similar to a credit card, to a cash-out refinance. Each of the options have pros and cons but they all share one similar trait: They offer cash to homeowners who have built up wealth via their home equity, but who are not quite ready to sell their home.
Understanding home equity: Everything you need to know
The long-term effects of a higher property value
Explaining the long-term benefits of a higher property value is far less complicated. In short, surprising circumstances can arise that cause you to sell your home — even if you swear that you will never, ever leave it.
Perhaps you'll outgrow the quirks you love now, or maybe it'll be far too much space after your kids grow up. Maybe you'll be offered your dream job on the west coast and have to pack up and move on. In short, you never know what the future holds, so having a higher potential sales price on your property means that you won't lose money if (and when) you eventually come to sell it.
Wondering how to check your home's value?
The tax-assessed Estimated Market Value may not reflect current market conditions, so you shouldn't rely on it as a real-time indicator of your home's value. To get a free, no-obligation pricing analysis, reach out today and one of our 2,300+ neighborhood experts will get in touch.
