Home Equity
Candlefocus EditorHome equity is the current market value of your home, minus any liens such as a mortgage, and it is the most important asset for many homeowners. Home equity represents money that has already been paid into the house, meaning it is an asset. By taking out a home equity loan or line of credit, you can get cash from the equity you have built in your residence over the years. The amount of equity available is typically determined by the value of the home and the size of any existing mortgages.
Homeowners can increase their home equity in a few ways. Making a larger down payment of more than 20 percent when buying a home will automatically add to their equity. Homeowners can also improve the property, such as renovating or adding new rooms, which can increase the overall value and add to the equity of the home. Home equity will also generally increase when market values in the area rises.
In many cases, home equity serves as leverage. Many homeowners will use the equity in their home to gain access to capital they may not have had access to through traditional loans. Refinancing, or taking a home equity loan, are both options which allow homeowners to make use of the equity they have built in their home. It is important to remember that home equity loans and lines of credit can be expensive or require collateral. Therefore, they should be taken only with careful consideration and financial planning.
Home equity is an important asset homeowners should consider when having a financial goal. Understanding the value of their equity can be helpful in making the right decisions when it comes to their home, such as whether or not to take out a loan or refinance. With the right decisions and financial planning, homeowners can make use of this valuable asset and secure their future.