What is Home Equity?

There are so many benefits to owning a home. From tax deductions to the pride of ownership, you can find lots of reasons to take the plunge and buy.  Today we’ll talk about another aspect of home ownership – home equity.

Home equity is the amount your home is worth minus the amount owed on your mortgage.  For example if your home is worth $250,000 and your mortgage is $150,000 then you have $100,000 equity in your home.

If the value of your home remains relatively stable over time, your equity will increase as your mortgage continues to decrease.

Your home’s value will fluctuate over time as the market rises and falls.  To keep up the value of your home ensure you keep up with your home’s maintenance and make improvements as necessary.

Home equity allows you to do several things:

-        Receive more cash for your home if you choose to sell in the future

-        Invest the money from the equity in your home toward a new home purchase

-        Receive a loan based on the equity you have in your home

With a brand new home, your home value is high due to the demand for new homes in the area and the newness of your home’s construction and materials.  To increase your equity in this situation, consider decreasing the debt on your home by making extra payments or refinancing to a shorter mortgage term.

If you are in the process of buying a new home, making a larger down payment will also quickly increase the equity you have in your home.

How do you keep up the value of your largest investment – your home?

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