What does equity in a home mean?

Home equity is the difference between the balance on your mortgage and the current value of your home. For example, if you have $225,000 left on your mortgage and the present value of your home is $310,000, you have $85,000 of equity in your home.

Is equity in a house good?

Equity is important because it is considered an asset and counts toward your total net worth.

• As long as you’re paying down your loan and the market value of your home maintains or increases, your equity will increase, and you will be that much closer to owning your home free and clear.
• Building equity in your home opens up the opportunity to utilize that equity and borrow funds against it. A Fixed Equity loan or HELOC (Home Equity Line of Credit) uses your home equity as collateral for you to fund things such as home renovations, debt consolidation, or even college tuition! Once you have the equity and become approved for a Home Equity Loan, those funds are available for you to use – however you choose.
• Are you thinking about selling in the future? The more equity you have in your home, the greater return you’re going to receive after the mortgage is paid off from the sale.
• Equity may also decrease even if you make all on-time mortgage payments. If the value of your home decreases, so does your equity. As mentioned above, equity is the difference between your mortgage balance and the current market value of your home.

How to build equity in your home?

Make a big down payment

By increasing your down payment when purchasing your home, you’re putting more equity directly into your home from the very beginning.

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Make biweekly mortgage payments

With this method, you’ll end up making an additional full mortgage payment per year, than you otherwise would have with a traditional monthly-payment plan. The extra payment per year could shave off years of your mortgage, along with saving you from hundreds or even thousands of dollars in interest.

Home improvement projects

Home renovations may help increase your equity. It's also important to know which projects offer more return on investment than others.

Projects such as replacing the garage door, updates to the kitchen, new front door, stone veneers (inside/outside), and updating bathrooms may recuperate more of the investment.

In comparison, projects such as: adding a pool, extending a room (and losing a bedroom), theater rooms, and garage conversions may not necessarily add to the value and could even work against you when it’s time to sell.

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Refinance to a shorter term

If your budget allows it, refinancing your current mortgage into a shorter-term mortgage has several benefits.

As you refinance into a shorter-term mortgage, you may be able to secure a lower interest rate. Along with a possible lower rate, while your payments may be higher, you are paying more towards your principal. Remember, the more paid into principal, the quicker you will yield equity. This growth of equity you could receive may outweigh the upfront cost for that refinance.

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Add Curb appeal

Step back and look at your home from the end of the driveway and note things to improve that require minimal or low investment.

Power-washing the home, fresh paint, repairing the grass, adding flowers and shrubs, new mulch, trim current landscape, mailbox replacement/touch up, and cleaning up clutter are all improvements that require minimal investment.