Equity: Defined as the left over interest of an asset. First, you must understand that there are many different types of equity. Equity can be defined as the left over interest of an asset after all obligations have been paid for. An asset can be more easily defined as a resource a person owns that can be converted into money. Equity can be solely financial or it can be related to real estate, stock or accounting.
In this case we are looking at real estate equity; home equity is the difference of the market value of the property and the amount that is stilled owed on the house. So for example, say a property’s market value is currently $200,000. The house was sold for $250,000 with a ten percent down payment of $25,000; that leaves $225,000 to be paid left over. There is a 30-year fixed-rate mortgage in place at %4.5 which would make the monthly payment about $1,100. Let’s suppose that the homeowner’s have paid off about $20,000 more of their home since the purchase. So we would subtract $25,000 and $20,000 from $250,000 which leaves $205,000 left to be paid off on the home. The market value has fallen by %5 leaving the house’s market value at $200,000; $200,000 (market value) subtracted from $205,000 (amount owed) equals -$5,000 – that is the home’s equity.
To increase your homes equity there are several things that you can do. The most important thing is to make regular and on time mortgage payments; each payment that you make increases the value of the home. Essentially you can also do this by paying the maximum down payment possible when purchasing your property. Increasing the value of your home requires an investment. This can be achieved by major or minor remodeling, renovations and landscaping; the nicer and well kept the home is the higher the value it will possess. Also, maximize the amount of money you can make on your mortgage payments; any extra money you can afford to pay on top of your current payment will decrease your amount owed while decreasing the life and interest of the loan. All of these efforts to increase your home’s equity will result in profit over long term efforts.
If you take care of your home and pay as much as possible on your mortgage you will be on a fast track to financial success. The more you do to increase your homes equity and pay off your mortgage completely – fully owning your home, the faster you can insure your future finances. Think about how nice retirement could be or what sort of investments you could make with no mortgage to pay and sitting on all of the equity!
