Home Equity
Home equity is the portion of the value of your home that you own outright, free and clear of all loans. It grows when you pay off your mortgage and home values rise.

So, if you’ve been in your home for a few years, chances are your home equity has grown as well. This growth may indicate an opportunity to refinance your debt.

How to calculate equity

When it comes to personal finance, one of the most important concepts to understand is equity.

  • Equity is the portion of a property’s value that is owned by the homeowner, and it can have a significant impact on a family’s financial stability.
  • Calculating equity is relatively simple: it is simply the difference between the property’s current market value and the outstanding balance on the mortgage.
  • Example: if a home is worth $300,000 and the mortgage balance is $200,000, the equity would be $100,000.
  • Families with high levels of equity are typically better positioned to weather financial challenges, such as job loss or medical bills.
  • Furthermore, equity can be used as collateral for loans, making it an important asset for many homeowners.


Factors that influence equity

There are a number of factors that can influence the equity in your home.

  • The most important factor is the value of your property.
  • If your home is worth more than you owe on it, then you have equity.
  • However, if you owe more than your home is worth, then you have negative equity.
  • Another important factor is the amount of money you have paid into your mortgage.
  • The more money you have paid, the more equity you will have.
  • Additionally, the length of time you have been paying into your mortgage can also influence equity.
  • If you have only been making payments for a short period of time, then you will have less equity than someone who has been making payments for a longer period of time.
  • Finally, the interest rate on your mortgage will also impact equity.
  • A higher interest rate will mean that more of your payments will go towards interest, rather than principal, and as a result, you will build equity more slowly.


How to increase equity in your home

If you’re looking to increase the equity in your home, there are a few things you can do.

  • One is to make sure that your home is well-maintained and updated. This means keeping up with necessary repairs, painting the interior and exterior of your home on a regular basis, and making any other cosmetic upgrades that may be needed.
  • Another way to increase equity is to pay down your mortgage as much as possible. This will reduce the amount of interest you’re paying and increase the portion of your home that you own outright.

Finally, you can try to increase the market value of your home by making strategic improvements that will appeal to buyers.

  • These could include adding another bedroom or bathroom, or updating the kitchen or flooring. By taking these steps, you can help to increase the equity
    in your home.


Before leveraging your home equity, consider the following:

Interest Rates: Compare interest rates for various borrowing choices to ensure you select the most cost-effective one.

Repayment Terms: Understand the repayment terms and make sure you can comfortably afford the new loan or credit line. 

Risks: Using your property as collateral means you risk losing it if you fail to make the required payments. 

Market Conditions: The stability of the property market might have an impact on your home equity and its growth potential. Use the funds prudently for financially sensible causes.

Purpose: Ensure you use the funds wisely for financially responsible purposes.

If you are thinking about refinancing your home loan, be sure to consider the costs of refinancing, such as application fees and closing costs, before making a decision. Wealthy You  is here to help you with your banking needs. Visit us at a local branch or online to learn more about our refinancing options.