Home Equity – What is it and Why Does it Matter?

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You’ve probably heard the recent buzz about the soaring prices of homes and how it affects home equity. What does it really mean, and why should you pay attention to it? 

Paying a mortgage on a house is like a long-term investment, and often referred to as one of the best ways to build long-term wealth. As your home’s value increases and the amount you owe on the home decreases, the equity in a home increases. The last few years of low inventory and strong buyer demand have escalated home values, resulting in quicker and higher equity gains. 

In the last year alone, we have seen record breaking equity gains. According to CoreLogic, the average annual gain in equity was $56,700 per borrower, which was the largest average equity gain in more than 11 years, and more than three times the gain from a year earlier. So what does this mean? Let’s break down what equity is, how you can build it, and how it can affect yours and other home prices. 

What is Equity?

In the simplest terms, your home’s equity is the difference between how much your home is worth and how much you owe on the mortgage. To calculate your home equity, subtract the amount of the outstanding mortgage loan from the current value of the property. the price paid for the property.

For example, if you currently owe $232,000 on your home and the home is valued at $432,000 today, you’d have $200,000 equity in your home. Likewise, if you owed nothing on that same home, you’d have $432,000 in equity. The more equity you have in your home, the more options you have.

What does increased equity mean for you?

Increased equity has several advantages. You can use that equity to purchase a new home, vacation home or investment property, or you can use it to get a home equity loan and do home updates and maintenance projects. 

Once you have built enough equity in your home, you can look to sell your home at a higher price from when you purchased it. This can help you with the down payment on your next home, investment property and other financial opportunities. 

If you’re looking to sell your home, or get a free home evaluation to ensure you’re on the right track, contact a Shorewest, REALTOR® today and visit our website for a free and instant home value estimation: https://yourhomevalue.shorewest.com/

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Categories: First Time Home Buyers, Home Buying, Mortgage, Real Estate Tips, Shorewest Tips

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