The Top Benefit of Owning a Home is Equity
One of the benefits of homeownership is that it is a “forced savings plan.” Here’s how it works: You make a mortgage payment each month. Part of that payment is applied to the principal balance of your mortgage. Each month you owe less on the home. The difference between the value of the home and what you owe is called equity.
If your home has appreciated since the time you purchased it, that increase in value also raises your equity. Over time, the equity in your home could be substantial. Recently, CoreLogic revealed that the average homeowner gained more than $65,000 in equity over the last 5 years.
Unlike last decade, homeowners are no longer foolishly tapping into that equity. In 2006-2008, many owners used their homes like an ATM by pulling equity out to purchase new cars, jet skis, or lavish vacations. They were pulling out cash (equity) from an appreciating asset, and then spending it on rapidly depreciating items. That is not happening anymore.
Over 50% of Homes Have at Least 50% Equity
The number of homeowners that currently have at least 50% equity in their home is astonishing. According to the Urban Institute, 37.1% of all homes in the country are mortgage-free. In a home equity study, ATTOM Data Solutions revealed that of the 62.9% of homes with a mortgage, 25.6% have at least 50% equity. That number has been increasing over the last five years:By doing a little math, we can see that 53.2% of all homes in this country have at least 50% equity right now. Of all homes, 37.1% are mortgage-free and an additional 16.1% with a mortgage have at least 50% equity.
These three strategies reduce your mortgage principal, granting you an equity boost in your home.
1. Maximize your down payment – Low down payment options make homeownership accessible for many families who can’t afford 20% down. But just because you’re approved for a 3% down payment loan doesn’t mean you can’t put down 5%, 10%, or 15%. A larger down payment helps you build equity faster and could end up saving you thousands of dollars in interest over the course of your mortgage.
2. Take out a shorter mortgage – Most homeowners choose a 30 year mortgage to keep their monthly payments low. However, you’ll typically pay less interest and gain equity more quickly with a 15 year mortgage, making it a better overall investment. Also, just like the down payment, if you can’t go from a 30 year all the way down to a 15 year term, try 20 or 25 years instead.
3. Prepay your mortgage – A lot can happen over the course of a 15 or 30 year mortgage. When your family earns raises or promotions that increase your income, funnel that money into your mortgage payments. Any extra money you put towards your home can go directly into your principal payment and reduce the overall interest you pay on your home. It will also lower the debt on your credit report and help build equity in your home.
Homeownership is different than renting. When you own, your housing expense (the mortgage payment) comes back to you in the form of equity in your home. That doesn’t happen with your rent payment. Your rent helps build your landlord’s equity instead.
If you are wondering “How Much is My Home Worth” you can check your home’s value here: https://www.greatersandiegoareahomes.com/evaluation, or reach out to us today for a comprehensive market analysis.
Brought to you by San Diego Real Estate Agent and Real Estate Broker, Glen Henderson. Glen has been a San Diego Realtor for over 16 years and has been involved in over 1,000 home sales throughout San Diego County. Contact him today with any questions at 619-500-3222 or visit Premier Homes at www.MyPremierHomes.com