You have just made the most significant financial investment of your life and the benefits of that decision, although unseen, will prove beneficial over the years.
WHAT IS EQUITY?
In layperson terms it is the amount of your home that you own after accounting for debt. In calculating that value, subtract your loan balance from the market value of your home.
Example: Your home is worth $400,000. You owe $250,000 on your mortgage. $4000,000 - $250,000 = $150,000 of equity in your home.
One of the key things to remember is that equity is an asset and with that asset you can do several things
1. Receive cash after you sell the home and pay all related costs
2. Borrow against it with a home equity loan or home equity line of credit (HELOC).
3. Use is as part or all your down payment for your next home.
That is nice, but how do I build home equity? There are two primary ways to build equity in your home.
1. The property value increases through, 1) rising prices in your market value; 2) home improvements; and 3) routine maintenance upkeep.
2. The amount of debt decreases through, 1) regular monthly payments; 2) shorter loan terms; 3) make extra payment and 4) leaving the equity untouched.
Remember: The process is slow, and only a portion of your monthly payment goes to equity. It may take several years to build significant equity, so it is best to borrow against it only when you really need it.
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