What You Need to Know About Home Equity
While most of us know having home equity is a good thing, we may not know why. So what exactly is home equity, anyway?
In short, home equity is the value your home has accumulated since you’ve owned it. Generally determined by your mortgage, the more you pay off, the more the value of your property increases. Overall, the more equity you have, the more you can use it to your advantage in terms of getting other types of loans and/ or credit such as personal lines of credit, credit cards and home equity lines of credit.
Here are a few other things you may not have known about home equity:
1. Market Value
If Edmonton’s housing market prices are rising, your equity will also rise as your home is now valued at a higher price than you originally paid for it. Best of all, you’re still going to be paying for you home at the original purchase price which may be considerably less.
2. Home Maintenance
While you may not realize it, keeping your home in good shape is just as important to your equity as paying your mortgage. For example, if you let your home fall into ill repair (let’s say peeling paint, cracked pavement and broken fencing as an example), you’re sabotaging your ability to make money off your home when it comes time to sell. This means what you’re paying for your current home is higher than what it’s actually worth.
3. Shorter Terms
Depending on how long the term is on your loan, you may be further along in having more equity. For example, the shorter the term, the lower the interest rate and you’ll be paying your loan back faster. While this means higher monthly payments, if you have the option to pick a shorter term, it may be worth it in the long run.
4. Extra Payments
As we mentioned above, the faster you pay off your mortgage, the better. If you choose to make a few extra payments on your home, or even just one per year, the more your home’s value will increase. This means, (you guessed it) more equity! Consider making one extra month’s payment a year or paying a little more each month throughout the year, if your lender allows it.
To sum it all up, having equity is something to look forward to as you go through the years of your mortgage. Be sure to check the conditions of your mortgage loan however, before making any major changes.