Home equity is often referred to as an asset of opportunity, allowing homeowners to take advantage of the capital they’ve invested in their property. Put simply, your home equity is the difference between the current market value of your home and the total amount you owe on your mortgage.
For example, if your home is valued at $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. This value grows over time as you pay down your mortgage and as your property appreciates in market value.
Advantages of Building Home Equity
Building home equity offers more than just a sense of economic security. It can provide real-world benefits, including the following.
- Access to Funds
Home equity allows you to access funds for major expenses like home improvements, education, or unforeseen emergencies.
- Improved Net Worth
An increase in home equity boosts your overall net worth and makes your financial profile more robust.
- Eliminating PMI (Private Mortgage Insurance)
If you’ve built up 20% or more in home equity, you could save money monthly by eliminating the need to pay PMI.
A Simple Guide for Calculating Home Equity
Understanding how to calculate your home equity is crucial for making informed financial decisions. The basic formula is simple but requires the right tools for accuracy.
- Determine Your Home’s Market Value: Use recent appraisals, or consult a real estate expert to estimate your property’s current value.
- Know What You Owe On The Mortgage : Check your most recent mortgage statement to find the outstanding balance.
- Subtract What You Owe From Your Home Value : Deduct the remaining mortgage amount from your home’s estimated market value.
For a quick and precise calculation, consider using a home equity calculator. This user-friendly tool simplifies the process and ensures accuracy.
Once you have your equity calculated, you can explore various ways to leverage it. On platforms like AmeriSave, you’ll find additional resources and tools that assist in better understanding homeownership benefits and options.
Factors That Influence Home Equity Growth
Building home equity doesn’t happen overnight. Various internal and external factors play a role in how quickly it grows.
- Property Market Trends: A rising market can increase your home’s value, giving you more equity without additional payments on your part.
- Consistent Payments on Your Mortgage: Paying more than the minimum due on repayments builds equity faster.
Strategies to Increase Your Home Equity
Looking to maximize the potential of your home equity? Here are some actionable strategies to help your financial investment grow further:
- Make Larger Repayments: Each extra dollar reduces the principle loan and increases your equity.
- Pay More Frequently: Another effective strategy is to make more frequent payments, such as bi-weekly instead of monthly. This helps reduce the overall interest paid and increases the equity in your home at a faster rate.
- Renovate Wisely: Certain renovations can increase the value of your home and therefore, your equity. But it’s important to carefully consider which renovations will have the highest return on investment before taking them on. Doing research and consulting with experts can help you make informed decisions.
- Stay On Top Of Maintenance: Keeping up with regular maintenance and repairs can prevent larger issues from arising in the future, which could negatively impact your home’s value.
