The Secret Asset Hiding in Your Home: Equity and How to Use It

Equity in your home refers to the portion of your home’s value that you actually own. It’s the difference between the current market value of your home and the amount of mortgage you still owe on it. If you’ve paid off your mortgage in full, then you own 100% of the equity in your home. But if you still have a mortgage, you own only a portion of the equity.

To understand how equity in your home works, let’s look at an example. Let’s say you bought a home for $300,000, and you put down a 20% down payment ($60,000) and financed the remaining $240,000 with a mortgage. Your home’s value has since increased, and it’s now worth $400,000. If you still owe $200,000 on your mortgage, your equity in your home is $200,000 ($400,000 – $200,000).

Equity in your home can be a valuable asset, as it can provide you with a source of funds if you need them. You can access your home equity in several ways, including:

1. Home equity loan or line of credit: You can borrow against the equity in your home by taking out a home equity loan or line of credit. These loans typically have lower interest rates than other types of loans because they’re secured by your home.
2. Cash-out refinancing: You can also access your home equity by refinancing your mortgage and taking out a larger loan than you currently owe. The extra money you receive is your home equity, which you can use for any purpose.
3. Selling your home: If you decide to sell your home, the equity in your home is the amount of money you’ll receive after you pay off your mortgage and any other costs associated with selling your home.

It’s important to note that equity in your home is not the same as cash. You can’t access your equity until you sell your home, take out a loan or refinance your mortgage. Additionally, the amount of equity you have in your home can change over time based on changes in your home’s value and the amount of your mortgage payments.

In conclusion, equity in your home is the portion of your home’s value that you actually own. It can be a valuable asset that can provide you with a source of funds if you need them. If you’re considering accessing your home equity, it’s important to understand the different options available to you and to consult with a financial professional to determine which option is best for your needs.