Home Equity: What is it and Why Does it Matter?

October 15, 2019


Home Equity Image

If you own a home, you need to know about equity — particularly, how much you have of it.

Home equity not only determines how much you stand to profit once you sell your property, but it also speaks to how much cash you can take from your home for renovations, to make repairs, or just to pay off debts and bills.

In short, it’s pretty important.

Do you own a home? Do you know how much equity you have or how you can leverage it? Use this guide for answers.

What is Home Equity?

Home equity is essentially how much of the home you actually own. Mathematically, if the total value of your home, minus your remaining mortgage balance. The rest? That’s your equity.

Generally, the longer you’re in a home, the more equity you’ll have in your property — and the more you’ll stand to gain once you sell the house. But equity isn’t just an influencer in your eventual home-selling profits. There are also other ways you can leverage as a homeowner to improve your property or even your household finances.

What Can You Use It For?

There are three main ways you can use your home equity: a home equity loan, a home equity line of credit (HELOC), a cash-out refinance. All of these are different ways of borrowing against your equity — or turning it into funds you can actively use today (rather than later on, once you sell the house).

Here’s what each of these options means:

  • Home equity loans – These are second mortgage loans that you take out in addition to your existing mortgage. You can usually borrow up to a certain percentage of your total equity stake, with your home serving as collateral in case you fall behind on payments.
  • HELOCs – HELOCs turn your equity into a line of credit, much like a credit card. You can pull from the balance as needed over a certain period of time.
  • Cash-out refinance – A cash-out refinance allows you to replace your existing loan with a new one with a higher balance. You then take the difference between the two loans in cash, which you can use how you see fit.
    Many homeowners use these three equity options to pay for home improvements, medical bills, tuition, and more, or to pay off higher-interest debts (like credit cards, for example). Keep in mind that with all of these loans, you’ll pay interest to borrow against your equity.

    How to Determine How Much Equity You Have

    Determining your home equity is pretty simple. You’ll just need the appraised value of your home and the current balance on your mortgage loan.

    The equation looks like this:
    [Appraised value — current mortgage balance = Equity stake]

    You can also use a home equity calculator for more hands-on help.

    Thinking of Leveraging Your Home Equity?

    If you own a home, you might have equity you can tap to pay off bills or make improvements around the house. Want to learn more about your options? Reach out to a Premier Nationwide Lending loan officer today for help.

    Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 700 State Highway 121 Bypass, Suite 100, Lewisville, TX 75067 NTFN NMLS 75333.

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