What is Home Equity?

We’ve all heard the term “Home Equity” on television and radio. We’ve even seen it newspapers — both in the form of advertisements from banks and other financial institutions — as well as in the hard news section. While many middle-aged adults are both familiar with the term and meaning, some younger adults may not fully understand it. This post will define what home equity means and why it is important for a homeowner to truly understand its meaning. It will also educate the millennial generation who will be making this decision sooner than they believe.

But what is home equity? Simply put, it’s the value of ownership you’ve built up in your home or property.

What the above statement represents is the current market value of your home or property less any outstanding mortgage payments. This value is built up over time as the property you pay off your mortgage and the market value of the property goes up in value.

Two Key Reasons why Home Equity is Important:

  • It represents one of the greatest sources of net worth for individuals and families.
  • It can be borrowed against in the form of special line of called a Home Equity Line of Credit, or HELOC. These are particularly useful for consolidating high rate credit cards, remodeling your home, or even personal use.

The key to building home equity lays in two important factors: loan repayment and price appreciation. Generally speaking as you repay your loan over time, you begin to build equity because you “owe less” on your home, and as time passes, the values of homes and properties generally increase. The less debt you carry on the home the more assets you will be able to obtain for yourself.

If you have any questions about how to build and take advantage of strong Home Equity, please do not hesitate to contact us. We’ll be glad to help.

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