Building Home Equity
The Benefits of home equity in building wealth for homeowners cannot be overstated. Home equity is a leading factor in the housing market. It is one of the main ways that people build wealth in this country and a key source of retirement income. Studies have found that 58.7 percent of homeowners have over 60 percent of equity in their homes. And 42 percent of homes are mortgage-free. This is a huge indicator that the Real Estate industry is holding strong.
What is Home Equity?
Home equity is the homeowner’s interest in a home and how much they own. When money is borrowed from a mortgage lender, the lender also holds interest in the property until that loan is paid off. The loan balance owed minus the market value of the home determines a homeowner’s equity. If your home is valued at $300,000 and you owe $200,000 on your mortgage then you have $100,000 in home equity.
Over time, equity can grow as the loan balance is consistently paid off, or if the property value of the home increases. The Phoenix area housing markets including Gilbert and Chandler Arizona have performed extremely well in recent years and this has increase home equity for most of us.
The considered equity, what is owned, is the most valuable asset for a homeowner which is why building equity is so important. It can also be used later on to buy a new home, make home improvements, use for retirement, or consolidate debt.
How Do I Build Home Equity?
In the simplest terms, you’ll benefit from your homes equity as a property value grows and as you pay your mortgage off.
Pay off your Home Loan
There are multiple ways to help build equity at a more active rate. As loans are paid off, equity increases as equal payments go towards the interest and the principal. The amount that goes towards the principal increases each year simply by making consistent payments. You can escalate this by making additional payments each month that specifically go towards your principal. This will help reduce the amount of debt at a faster pace getting you closer to a better ratio of debt to value. The other benefit is you’ll pay your loan off faster and save thousands of dollars in interest over the life of your loan.
Get a shorter home loan term or make extra payments on your home loan
If you can, consider getting a shorter term on your loan. The longer your term, the longer interest will build. Choosing a 15-year mortgage, you’ll most likely get a lower interest rate because you are paying off the loan in a shorter period. The monthly payment may be higher than that of a 30-year mortgage, but you’ll be saving more money overall and spending less on interest. You can talk with your lender and see if refinancing is a good option for you if you started with a 30-year mortgage. 15 year mortgages make a lot of sense for homeowners that are already well into paying off their mortgage and are looking to refinance.
Home Improvements can help to build your home’s equity
Making home improvements over time is also an active way to build home equity. Why? Making big (and small) renovations or adding desired features and amenities, create property value in your home. Basic upkeep, repairs, and maintenance can help with this. Depending on the location of your home, market value can increase or decrease. Though this can’t always be controlled, the quality of your home is something you can persistently do to build value that buyers look for in a home. Too many people way until they sell to do remodeling or home improvements. Why not enjoy the benefit of the improvements for a while when you’re living there?
Building Home Equity Through Appreciation
The value of a property grows over time. Say a buyer purchases a home for $300,000, and sells it years later at a larger sum of $450,000 – that means the difference of $150,000 is what the home appreciated.
Location is a big factor in home appreciation. Convenience to transportation, good school districts, along with the land and the overall environment is something to consider. Investing in real estate located in an established or promising neighborhood can be very lucrative. Projections for the Phoenix area real estate market show continued growth in home values for the foreseeable future.
Supply and demand within the housing market also play a big role. When a specific market has high demand, home prices increase when there are not enough homes to meet those demands. Those investing in real estate jump on opportunities where they can invest. Some investors decide to buy a smaller home, then sell at a higher value, and pocket the profits.
Building Home Equity: Work with an Expert
There can be different qualifications and risk and the market is not always predictable. Use your home equity wisely. It can make sense to borrow perhaps once over the life of your loan to payoff credit card or other debt. Feel free to contact me to learn what the best option in building or using equity. We look forward to helping you strive toward success.
Please reach out to me directly if you have any specific real estate or mortgage questions. The article was written by DigitalDirect.Marketing with information from resources like Realtor.com, Forbes,