Why Should I Build My Home Equity?

With homeownership comes many responsibilities. One of those responsibilities, oftentimes overlooked, is building your home equity. While you may not see the worth in it today, it is slowly building value for your future. This is something that shouldn’t be ignored.

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Discover why buying a house is still a good investment, especially in Mercer and Darke counties!

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The True Value of Your Home

So, what is home equity? It is the amount of your home that you actually own. Sound confusing? In the simplest terms, what that means is the value of your home minus any outstanding loan balance. For example, say your home is worth $150,000; however, you still owe $50,000 on your mortgage. This means your home equity is actually $100,000 ($150,000–$50,000). This is the amount that you would receive if you sold your home today for its full value.

Why Build Home Equity?

While you may not see the value when first purchasing your home, there are many positive reasons to build your home equity over the years. In the future, you may need to refinance or take out a home equity loan or a home equity line of credit. In order to put things into perspective, here are just 3 ideas of ways you can use accumulated home equity.

1. Home Renovation:  Do you need to upgrade your kitchen or bathroom to modernize your home? In order to increase the value of your home, sometimes renovations are the answer. If those renovations need to be made sooner rather than later, your home equity may be the solution.
2. Emergency Funds:  Did your basement flood, and insurance won’t cover all of it? Did your car die, and now, you don’t have a way to get around town? Did a medical emergency spring up at an inconvenient time? It’s always much more comforting to have the funds available in case of an emergency.
3. Pay off credit card debt:  Are you drowning in credit card debt? Using a home equity loan could be the solution. On average, credit card interest rates hover around 15% to 20%. Home equity loans, on the other hand, are generally less. While you will be trading one debt for another, the amount of money you will save on interest could be substantial.

Real estate has been a chief contributor to the financial wealth of previous generations so people who don’t invest in a home or other real estate may be at a disadvantage. Brad Friedlander, managing partner at Angel Oak Capital Advisors, attributes the growing wealth gap between renters and homeowners to home equity.

How to Build Home Equity

Now that you have ideas for home equity bouncing around in your mind, you may be wondering, “How can I build my home equity?”

There are two ways you can do this:

1. Increase the value of your home, or
2. Decrease your amount of debt

Increasing the value of your home can sometimes be out of your hands. While renovations can increase the overall value, it is not always guaranteed. Remember: Home improvements and standard upkeep should always be the goal of any home owner. Your home value may also rise as prices increase in your market. Be sure to keep an eye out on your home value as your neighborhood grows or renovations are being made around town. These could be signs of rising home value.

As residents of Mercer and Darke counties, home appreciation rarely falls far, so you’re more likely than most homeowners in Ohio to increase your home equity. Although you may currently have little home equity, it can grow quickly.

Decreasing your debt is something that, with the right mindset and discipline, you can easily manage. Decreasing your debt can be as simple as increasing payments or refinancing your current loan. Mercer Savings Bank is here to help with any questions!

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Worried about mortgage ripoffs? We can help!

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As your local bank, we can help you understand the importance of your home equity and how it can assist you in the future! Visit our Mortgage Center or call 877.672.4543 to speak with a mortgage loan officer today.