These days you’ll often hear homeowners going on about the equity in their homes. So, what exactly is it and why is it important? Is there anything you can do about it?
Equity is the difference between what you owe on your home and what you’d get if you sold it. For example, if you owe $250,000 on your loan and your home is worth $400,000, your equity is $150,000.
So, how can you actively benefit from having equity in your home? For many, it is the first step on the road to creating wealth. Your equity can be used to help finance the purchase of your first investment property. You’ll be able to start investing sooner because you won’t have to wait until you’ve accumulated the deposit needed to get a loan. You may even be able to get a better deal when applying for your investment loan.
If you prefer, you can use the equity to borrow money for other purposes or use the cash you get from selling your home to buy another.
But can you play a role in growing your equity? If you just sat back and did nothing, your equity should grow over the years as you pay down your mortgage and property prices rise. However, there are ways you can speed things up by creating instant equity.
There are two ways you can give your equity a kick start. The first is to buy a newly built home in an established suburb at a price that is well below the median price for homes in that area. This will give you a good chance of getting an initial boost to the equity and value of your home.
The second method is to renovate or extend, but you should be very careful that your renovations will add value – some do and some don’t. So, do your homework.
Over time, there are also other things you can do such as maintaining the property and improving the street appeal of your home. And, of course, you will increase your equity by decreasing your debt. This can be achieved by making extra payments on your mortgage or making sure you’ve got the best loan for your needs.