Unlocking the Power of Equity

Do you want to learn more about the equity in your home? Building equity is an important aspect of homeownership as it helps you build your net worth and provides financial flexibility. Below, we'll explore different ways to build equity, discuss how equity can be lost, and explain why home equity is so important.

Building Equity

The simplest way to build equity is to keep paying your mortgage. Every mortgage payment you make reduces the amount of debt you owe on the home and therefore increases your equity. There is typically a balance of how much of your mortgage payment goes toward interest and how much goes toward principal debt. More money is applied to interest early in the mortgage, but every bit of extra you pay goes directly to reducing the principal and helping boost equity.

Another popular way to build equity is to make upgrades and improvements to your home. Have you thought about finishing a basement or installing hardwood floors? Or perhaps something more significant like a kitchen or bathroom remodel, adding an additional room, or even adding a pool? Some upgrades are worth more in equity than others. For example, say you invest $20,000 cash into a kitchen upgrade. A better kitchen could actually increase your home's market value by as much as $50,000, therefore adding equity to your home.

If you don't want to make any big upgrades just yet, simply maintaining your home and taking good care of it also increases your equity. A well-cared-for home is a more valuable home, and more value equals more equity!

Refinancing your home when the time is right could also impact your home's equity. A lower interest rate reduces the amount of money you owe back, and less debt means more equity! And if you want to get a jump start on your home's equity, consider making a large down payment. The closer you can get to 100% ownership, the better!

Losing Equity

Just as home equity can be built up, it can also be lost. Taking out a second mortgage or taking out home equity loans actually borrows against the equity in your home, therefore reducing the equity you have worked so hard to earn. It's important to carefully consider the risks and benefits of a home equity loan before taking one out.

Neglecting your home can cause you to lose equity as well. Failure to maintain your home can lead to costly repairs and decrease the value of your home, and in turn, your equity takes a hit. Unfortunately, there are also factors outside of your control that can impact your home's equity. For example, if home values in your area take a turn for whatever reason, this can cause a loss in your home's value as well, no matter how well you've taken care of it. Other economic factors like recession or high unemployment can also affect home values and potentially reduce your equity. Click here to see what your home is worth!

Why is Home Equity Important?

So we've learned about home equity, what it is, how it's earned, and how it's lost. But how about why it's so important? Ultimately, home equity helps you build your net worth and your financial foundation. It also can provide you with flexibility, since you can borrow against your home equity for unexpected expenses or to finance major moves like starting a business.

It can also provide a source of retirement income! If you choose to downsize or sell your home in retirement, the equity you have built up can provide a source of income to supplement your retirement savings. Did you know home equity can increase your borrowing power? Lenders may be more willing to offer you credit or loans if you have substantial home equity, which can help you achieve even more of your financial goals.

In conclusion, building and maintaining your home's equity is an important aspect of homeownership. By paying off your mortgage, making upgrades and improvements, maintaining your home, refinancing, and making a large down payment, you can set yourself up for long-term financial success. Just remember to carefully consider the risks and benefits of taking out a home equity loan and keep up with maintenance to avoid losing equity. Home equity helps you build your net worth, and provides flexibility, retirement income, and increased borrowing power - all of which are important for achieving financial goals.