When it comes to equity the various forms can be overwhelming to understand strategies, rules, securities, etc.
According to Investopedia: In the context of real estate, the difference between the current fair market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage. Also referred to as “real property value.
If the value of your home is $100,000 and your mortgage balance is $50,000 you have $50,000 worth of equity in your home.
Home Equity can only be accessed in one of two ways — you can sell your home, or you can cash-out refinance it. When you sell your home the monies paid based on the home’s value minus what is owed is given to you at closing. During a cash-out refinance one can increase the size of their loan to pay the former mortgage amo9unt. What is leftover is the home’s equity and paid in cash.
Advantages of Holding Equity
The main advantage of holding equity of course is it increases the net worth. Planning for a Financially stable future is a science in itself. Preparing for this future sooner rather than later when it comes to home ownership will lead to a worry-free lifestyle.
Did you know you can borrow against your equity? Would you like to start a business or remodel your home to increase its equity? This is one financial strategy to obtain cash to start. The home equity loan, home equity line of credit and cash-out refinancing are several options that homeowners can choose from if they want to borrow against their equity.
Equity from the sale of a home can be used as a down payment on the next purchase. Depending on the size of the home loan is the main factor for the down payment available for the next sale.
Equity can also be used to fund retirement. using a Reverse Mortgage will provide income to retirees while not requires monthly payments. A reverse mortgage is a special type of loan developed and insured by the U.S. Dept. of HUD that enables homeowners who are 62 years of age or older to access a portion of the equity in their home without ever having to make a monthly mortgage payment.*
So how do you get the biggest bang for your buck? There are a few ways to increase your home’s equity
- Wait for Real Estate Values to peak
- This is out of everyone’s control but when it’s a Seller’s Market. When home values rise the equity as well as it’s net worth rises as well. There is never a foolproof way to predict home values but when a market’s supply is lower than it’s demand, well you can do the math and see that it’s a prime time to sell.
- Pay extra on your Principal in your Mortgage payments
- Each extra payment reduces the amount you owe on your home, which increases your home equity. Keep in mind when extra cash is sent to the lender it is inaccessible except via refinance or a sale of your home.
- Home Improvements will Improve your Home’s Value
- Home improvement can increase the value of your home, in turn, increasing your amount of home equity. This practice is called forced appreciation and is a direct result of your upgrades/improvements.
- The kitchen is King!
- Trimming overgrown shrubs and making minor repairs, including painting the front door, can deliver quick results on a budget.
- Reducing your mortgage loan term
- Refinancing from a 30-year mortgage to a 15-year mortgage will accelerate the rate the principal balance is repaid. This reduces the long term of interest costs typically by 60%
Home Equity is the portion of your property that belongs to the owner. One can own a home, but if to borrow money to buy the property, the lender also has an interest in the property until the loan is paid off.
Home equity typically is a homeowner’s most valuable asset.
Green, Dan. “Increase Your Home Equity & Grow Your Net Worth.” The Mortgage Reports. N.p., 04 Aug. 2016. Web. 05 July 2017.
“Real Property.” Investopedia. N.p., n.d. Web. 05 June 2017.
“Equity.” Investopedia. N.p., n.d. Web. 05 June 2017.
“Reverse Mortgages.” Huron Valley Financial. HVF, n.d. Web. 7 July 2017.