Want to build equity in your home?
November 16 2017
You're probably familiar with the term "home equity," but do you know exactly what it means and how important it can be to a homeowner? Find out what equity is, how it can build up and how you can use it to your advantage.
What is home equity?
When you subtract what you owe on your home from what your home is currently worth, the difference is the equity. Owe $100,000 on a $200,000 home? You have $100,000 of equity. Equity increases over time as you pay off more of your loan and as your home's value increases.
How can I build equity?
There are other ways to build equity than just paying off your mortgage. You can increase your home's value by making improvements such as remodeling a kitchen, adding a room or installing a swimming pool.
Making extra payments on the principal of your loan, paying your mortgage in biweekly instead of monthly intervals and refinancing your mortgage for a shorter term or lower interest rate can also build equity.
What are the benefits of having equity?
Once you have enough equity, it can be a valuable financial asset. One popular use is a home equity loan or line of credit. These are funds that use your home as collateral in the case you can't or don't pay them back.
Another common use for equity money is putting it toward the purchase of your next home. Any funds that aren't used to pay the mortgage or real estate agent can be put toward the down payment.