Pride of ownership, mortgage interest deductions, and building equity through mortgage reduction are among the many good reasons owning a home is the keystone of the American dream. Equity is your home’s value minus the remaining balance on your loan, and you build it through every payment you make.
If you’re a homeowner, you may not realize just how fast you have been building equity. And today, more than ever, building equity is on the rise and is very good news for homeowners. The news is particularly good for low and moderate-income homeowners since building equity is a major source of their wealth.
The reason is simple and boils down to the basic rule of supply and demand. In other words, the housing supply is low and the demand is high. When there aren’t enough homes available in a specific area to meet high buyer interest, bidding wars drive up home prices. That means your home is worth more in today’s market, and your equity climbs right along with your home’s value.
Dr. Frank Nothaft, Chief Economist at CoreLogic says, “Home prices rose 18 percent during 2021 in the CoreLogic Home Price Index, the largest annual gain recorded in its 45-year history, generating a big increase in home equity wealth.” According to the latest Homeowner Equity fourth-quarter report from CoreLogic, equity has grown by a whopping $55,300 in the past year for the average homeowner. The collective gain is over $3.2 trillion in the last 12 months.
The gains vary across the country. California, Hawaii, Arizona, and Washington state experienced the highest gains followed by Nevada, Utah, Colorado, and Florida. Washington D.C., South Dakota, and Mississippi saw the lowest.
How does rising home equity impact homeowners directly? When you sell your home, the money comes back to you in the form of equity and can cover most or all of the downpayment for your next home. An increase in home equity means less risk of being priced out of your next home as prices go up in today’s housing market.
In addition to adding greatly to overall net worth, equity helps you achieve other goals. Home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing can be used to fund home improvement projects like kitchen and bathroom upgrades, landscaping, and other features that increase the value of your home even more.
It’s important to understand the difference between these loans. With a home equity loan, you receive a lump sum and repay it over time with interest. A HELOC provides funds that you can access over a given period of time. Cash-out refinancing replaces your current mortgage with a new and bigger one. The money you borrow against the equity is rolled over into the new mortgage.
The bottom line is that home equity can be a real game-changer for you. Connect with a real estate agent in Lakeland, FL to find out how much equity you have and how it can be used to your advantage.