Understanding Home Equity

In the world of real estate and investment property, there are many terms that will come up that require further explanation. Whether you’ve never heard the phrase ‘home equity’ before or you have a little familiarity, here are the ins and out of what it means and how this asset can help your long-term financial outlook.

All About Home Equitywhat is your home equity and how much is it

Your home equity is the value of ownership built up in a property that represents the current market value of the house less any remaining mortgage payments. Essentially, home equity refers to YOUR portion of the value of your home. If this sounds confusing, think of it this way: if you have completely paid off the mortgage of your home, the value of your home equity is the market value of the property. For those of us not so luck to own their home outright, their home equity would consist of their down payment and whatever amount they’ve paid down on the mortgage since purchase, subtracted from what it’s worth.

An Example Of Home Equity

To provide further clarification, let’s use the example of a house that has been purchased for $400,000. In the case that a down payment of 20% has been provided at the time of purchase, the equity in the home would be $80,000. Since this amount is the percentage and cost of the house that’s been paid down, this is the amount of the house that is actually owned and this will be figured among an individual’s assets. If the value of the home goes up to $450,000, the equity will also go up (moving from $80,000 to $130,000 in this example).

How Home Equity Works 

As you pay the amount that you owe on your home each month, you are paying off your total debt and thereby increasing your equity. Since this amount of money is considered an asset that belongs to you, it can be used down the road to buy another home or invest in other important things like education or retirement. Paying off the amount owed on a home is a considerable investment and is considered an asset as part of your financial net worth.

 

For more information on this topic:

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Ryan@RyanYourRealtor.com
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