If you’ve owned your home for a while, there’s a good chance something has been quietly changing in the background: your equity.
Every mortgage payment that reduces your principal can help build equity. Changes in your home’s value can affect it, too. And with homeowner equity at historically high levels nationwide, many homeowners may be sitting on more than they realize.
For many homeowners, that equity can add up to a significant financial asset.
The question is: What can you actually do with it?
First, What Is Home Equity?
At its simplest, home equity is the difference between your home’s current value and what you still owe on it.
For example, if a home is worth $450,000 and the homeowner owes $300,000 on the mortgage, there is approximately $150,000 in equity.
That doesn’t necessarily mean all $150,000 is available to borrow, but it gives you a starting point for understanding your financial position.
Equity Can Create Flexibility
There isn’t one “right” way to use home equity, and sometimes the best decision is to leave it alone. But depending on your goals, it may give you options you hadn’t considered:
- Home renovations or repairs. Instead of putting a major project on a high-interest credit card, some homeowners explore whether their equity can help fund the work.
- Higher-interest debt. If you’re carrying balances with significantly higher interest rates, it may be worth comparing those costs with available mortgage or home-equity options.
- College or other major expenses. Families sometimes consider home equity when planning for large expenses that don’t fit comfortably into their monthly budget.
- Buying another home. Equity from your current home may factor into the financing strategy for a move-up home, second home or investment property.
- Financial flexibility. Sometimes homeowners simply want to understand what resources would be available if their circumstances changed.
The Important Part Is Running the Numbers
Using home equity isn’t automatically a good or bad financial decision. It depends on what you’re trying to accomplish, the financing available and how the numbers compare. Accessing equity through financing generally means taking on additional debt, so it’s important to look at the full financial picture rather than starting with a specific loan product.
Know Your Options Before You Need Them
You don’t have to wait until you’re ready to renovate, move or make a major financial decision to understand your equity. In fact, knowing where you stand ahead of time can make those decisions much easier when they come.
Want to know how much equity you may have and what options could be available?
Fill out the form below to connect with a Highlands loan officer. We can take a look at your current mortgage and help you understand the possibilities based on your goals.
