HOMEBUYINGIt’s all you, baby booHome equity is all about ownership.By Lillian StoneSeptember 21, 2023Until you pay off your entire mortgage, your mortgage lender still owns a percentage of
HOMEBUYING It’s all you, baby boo
Dated: September 21 2023
It’s all you, baby boo
Home equity is all about ownership.
September 21, 2023
Until you pay off your entire mortgage, your mortgage lender still owns a percentage of your home. But when that sucker’s paid off, you have 100% equity in your home—and there are a few ways to leverage that.
Home equity—the amount of your home that you actually own—is a huge asset when it comes to wealth-building. But why does home equity matter, and how can you tap into it?
How do you build home equity?
Good news for the lazy financial wizards in the room: Home equity isn’t necessarily something you have to think about as you pay down your mortgage. Your equity increases over time as you make your monthly payments—and you don’t have to wait until your pad is completely paid off to leverage it, either. If you want to build equity faster, here are a few ways to do that:
Plan for a bigger down payment: If you put 20% down on a $350,000 home, you’ll have $70,000 in home equity the second you close. And that equity is money you can use. (More on that later.)
Make extra mortgage payments: The faster you can pay down your mortgage, the faster you’ll have that equity. By making extra payments to your mortgage, you can also save money on interest. It’s a win-win. Just beware of any prepayment penalties that may be hiding in your mortgage loan agreement. These are fees that the lender charges you for paying off your mortgage earlier than its term.
Consider a refi: If you’re feeling wild, you can always refinance to a shorter loan term in exchange for higher monthly payments, allowing you to pay your loan off earlier. Keep an eye on those interest rates, though—refinancing at 7% is…not great. You may also have to pay extra closing costs for a new loan, so take your budget into consideration.
Tapping into your home equity
We’ve talked extensively about tapping into your home equity—take Money Scooper Myriam Robinson’s 2022 article, for example. Between a cash-out refinance (which involves paying off your old mortgage and pocketing the extra money), a home equity line of credit (HELOC), or a home equity loan, there are plenty of ways to make that money work for you.
Bottom line: Home equity is your share of ownership, and there are lots of ways to work it. Just pay attention to the market and keep an eye on interest rates, refi closing costs, and other variables before you make a move. 🏠
Hello! I'm Christina Segovia, and I'm excited to share a little about myself. With a heart that values loyalty, kindness, hard work, and a passion for helping others, I've dedicated myself to making a....