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In just the second quarter of 2021, U.S. homeowners with mortgages gained $2.9 trillion in equity, according to a CoreLogic report. Equity is the value of a piece of property (your home’s appraisal value), after any debts that remain to be paid (the amount you still owe on your mortgage) have been subtracted. Put in simpler terms, your home equity represents the amount of your home that you own.
Here’s an example:
Your home is appraised at $350,000 and you owe $100,000 on your mortgage. This means that you have $250,000 of equity in your home.
3 Ways to Increase Your Home Equity
1. Refinance your mortgage to a shorter term.
This option allows your payment to work to your advantage. The principal amount applied will be more and the interest will be less.
Plus, when you refinance your mortgage at a lower interest rate, you could lower your monthly payments or pay your loan off sooner. See if this option is right for you!
2. Increase your home’s value.
There are many ways to increase the value of your home, some being:
• Remodeling (interior or exterior)
• Adding an outdoor deck
• Improving energy efficiency
When you increase the value of your home, you are also increasing your home equity. Keep in mind that market conditions can have an impact on your home’s value and that not all renovations will increase the value of your home or provide the same amount of return. Always do your research first!
3. Pay off your mortgage.
This is a very effective way to increase your home equity. Paying off your mortgage faster than anticipated can not only save you thousands of dollars in interest, but also build your equity quickly. Every dollar paid towards your mortgage is a dollar increase in your home equity.
If you can’t afford to pay off your mortgage in full right now, try making slightly larger monthly payments for a while, or even just a couple extra payments each year. Always be sure that there isn’t a penalty for paying your mortgage off ahead of schedule.
How to Use Equity as a Down Payment
Once you have equity built in your home, you can tap into it for just about any purpose, including as a down payment for your next house. A common way to do this is through a Home Equity Line of Credit, a revolving line of credit.
With a HELOC, you can reuse the credit line (without exceeding your credit limit) with only having to make payments based on the credit you use – and with much lower interest rates than a personal loan or credit card.
Home Equity Line of Credit
It is important to take all costs into consideration and know whether your budget can handle this option. Our friendly loan specialists can help lead the way!
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