The flurry of activity in the housing market over the last few years has prompted more homeowners to inquire about the equity in their homes.
If you’ve lived in your home for a few years, you’ve probably racked up your fair share of home equity. Whether you’re looking to sell your home or take advantage of loans, there are many benefits to having more equity in your home.
You might wonder how much equity you have in your home. To calculate that, you must understand the basics of how equity works.
What Is Equity On A Home?
Home equity is the difference between the value of your home and the amount you owe on your mortgage. This is your owned share of the property compared to what your lender owns.
For example, a homeowner with a home valued at $100,000 with $80,000 remaining on their mortgage has 20% equity in their home.
How to Increase Home Equity?
Many homeowners wonder how they can build home equity. There are two main ways to do this.
The first is by paying off your mortgage loan. The more of the principal you pay off, the more equity you’ll have in your home. For example, if you have a home worth $100,000, for every $5000 you pay off you’ll gain 5% in equity.
The second way to increase equity in your home is through appreciation. If the value of your home increases, your home equity will also grow. The longer you own your home, the more likely it is you’ll see the benefits of appreciation in home value.
You can also grow home equity by making improvements to your property. However, this method often requires a significant investment.
Average Equity Increases Over Time
To determine the exact amount of equity in your home, you’ll need a professional to appraise your property. According to a 2022 study from the National Association of Realtors, homeowners have typically built a wealth of over $240,00 over 10 years. For a lot of people, those are pretty significant gains.
Your increase in equity will depend heavily on the housing market in your area and your home itself. Markets, where the home price appreciation is bigger, will build equity more quickly. It will also vary based on how fast you’re able to pay off your mortgage.
Benefits Of Home Equity
As your equity increases, you might want to take advantage of some of the benefits. There are many reasons homeowners want more equity in their homes.
If you’re thinking of selling your home, you can use that equity to make a larger down payment on a new home. Homeowners with equity can also take advantage of a home equity line of credit (HELOC). These lines of credit are tied to your home and typically have lower interest rates. They’re often used for debt consolidation or even home improvements.
The Bottom Line
For most homeowners, building equity is an exciting part of homeownership. The exact amount of equity you have in your home will depend on a variety of factors. If you’ve lived in your home for a while, you likely have some equity you can take advantage of.
If you’re looking to tap into your home equity, it’s important to reach out to a real estate professional. They can help determine the value of your home and calculate the equity to help you make your next move.