The blue line in the chart below (via the New York Fed) shows total owner’s equity in real estate. The red line shows the combination of two ways that households can withdraw equity—assuming they have some—without selling the house: they can originate a junior lien against the property or they can refinance using a cash-out refinancing of an existing first-lien mortgage.
The New York Fed comments:
The first observation that’s striking about the chart is the dramatic change in borrower behavior with respect to home equity. During the boom between 2000 and 2006, household equity and its extraction were both rising rapidly. From 2003 to 2007, homeowners were extracting more than $350 billion per year, resources that were available for use in a variety of purposes from home improvement to consumption.Generally, I am not in favor of borrowing against equity in a house. However, if you can borrow long-term at a fixed rate with no pre-payment penalty, now is a great time. Especially if you are in a situation where you income will go up with price inflation.
The second major point of the chart is the effect of the housing and financial crises. Beginning in 2008, equity extraction began to decline quickly and was hovering around zero by 2010, where it remained through 2012. The virtual elimination of equity withdrawal was a big contributor to the household deleveraging that ultimately shaved more than $1.5 trillion from household debt...
A third notable feature of the chart is that the current house-price rally (prices are now up about 40 percent from their 2012 trough, according to CoreLogic) has not been accompanied by anything like the same level of equity withdrawal as the previous boom. In fact, withdrawal has remained well south of $50 billion, even as aggregate equity has approached its 2005 peak.
Price inflation, over time, will make your payments insignificant. It often (not always) makes sense to go against the crowd, now is such a time. Most aren't doing it but now is a great time to use your house as an ATM.