If you’re like most Americans, your home will be a major source of your net worth. As you continue to pay your mortgage, you will build equity in your home, which allows for some flexibility in utilizing it towards you and your family’s needs.
How do I Build Equity in my home?
Home equity is simply the market value of your home minus what you owe on the home. If your home is worth $340,000 and you owe $170,000, your equity in your home is $170,000.
Home equity rises in two ways:
- Paying down your home mortgage loan
- Home appreciation via market prices
As you continue to pay your mortgage and reach the payoff date (a process known as “amortization”), you will gain a greater share of ownership in of your home, resulting in – more equity.
Over the past 10 years, real estate markets have steadily appreciated in the U.S. This means more equity for those who own homes in those markets. In places where homes have depreciated, homeowners will need to pay their home mortgage loan to create home equity.
Programs That Use Your Home Equity as an Asset
Since your home is your greatest asset, you have it available for you to use at any given time. That’s a big benefit of homeownership, you can use it for different reasons and life events! Here are some of the programs that can leverage your home equity:
Home Equity Loans
Many people choose to use their home equity in the form of a loan. Just like a regular loan you would get from a bank or another lender, it comes with a monthly minimum payment and set interest rate. Home equity loans have a variety of uses but many people use them to help pay down debt or utilize towards a one-time expense.
A cash-out refinance is a refinance that uses the equity you’ve built in your home as money you can use towards different life events. The new home loan becomes your original loan plus whatever equity you’ve decided to use for your cash-out refinance.
Many people who do a cash-out refinance decide to use it for home improvements, paying off debt, or even planning of major life changes (children going to college, retirement etc.).
One of the more popular uses for home equity is a reverse mortgage. A reverse mortgage is also known as a home equity conversion mortgage (or HECM). In this program, your home equity is converted to cash. This is especially helpful for those who want to supplement their retirement. You must be 62 years old or older to take advantage of this loan program.
It’s Your Asset, Use It!
Using your home equity is a great way to accomplish your financial goals and create a good foundation for a great life. You’ve worked incredibly hard to buy your home and build the equity in it, so you shouldn’t hesitate to use it when the need arises.
If you want to get started using the equity in your home, reach out to a Homebridge MLO in your area today.