The Basics of Home Equity and What You Should Know

Once you become a homeowner, the concept of building and taking advantage of the equity in your home is something you should consider. But what exactly is equity?

Home equity is the difference between the value of your home and what you owe. To find out how much equity you have in your home, subtract how much you still owe in mortgage payments from the total value of your home. For example, if your house is worth $300,000 and you still owe $200,000 in mortgage payments, then you have $100,000 in equity.

Building equity can happen in two main ways - when the property value increases or when the amount of your housing debt decreases.

Property value can increase when:

• There are rising housing prices in the market.
• You make home improvements that increase the value of your home.
• You continue to keep up with repairs in your home.

Housing debt decreases when:

• You continue to make your monthly payments on time.
  • If you get a shorter loan term, then you will build equity faster.
• You make extra payments.
  • If you need to take out a longer term loan, you can choose to make extra payments when you have the available funds to get rid of debt faster

Once you have equity built up in your home, you can take out a Home Equity Line of Credit or a Home Equity Loan, also known as a second mortgage. This money can be used for pretty much anything. Many use it to pay for home improvements, pay for college tuition, consolidate existing balances, or to take their dream vacation. Just like with any loan or form of credit, make sure you borrow responsibly and stick with a repayment plan.