🤔 Today's Trivia Question:

The Difference Between the Market Value of A Property and the Amount Owed on its Mortgage?

Correct Answer: A) Equity

📈 Understanding and Growing Your Home's Equity

Understanding Your Home's Equity

Homeownership remains a key part of the American Dream, offering both a place to call your own and a means to build wealth over time through equity.

What is Equity?

Simply put, your home’s equity is the difference between its market value and what you owe on your mortgage. For instance, if you purchase a $250,000 home with a 7% down payment of $17,500, your loan amount will be $232,500. With a 30-year fixed-rate mortgage at 4.5%, your monthly payment, excluding taxes and insurance, would be $1,178. Initially, your home equity equals your down payment of $17,500. Once your mortgage is fully paid off, you'll have 100% equity in the home.

Building Equity

You can build equity in two main ways: paying down your mortgage and through home appreciation.

1. Paying Down Your Mortgage Each mortgage payment reduces your loan balance. For example, after ten years of payments on the aforementioned mortgage, your unpaid principal might be down to $186,208. Assuming the home value remains at $250,000, your equity would be $63,792.

2. Home Appreciation Home values generally rise over time. If your home appreciates at the national average rate of 3% annually, its value would increase from $250,000 to approximately $335,979 after ten years. With an unpaid principal of $186,208, your equity would then be $149,771.

Building equity is vital for financial stability. However, it's important to remember that home values can fluctuate due to market conditions, the upkeep of your home, and neighborhood trends.

Source: myhome.freddiemac.com