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The average American homeowner had over $274,000 in equity, as of the first quarter of 2023. That’s according to CoreLogic, a consultancy that tracks real estate and property data, who released a report on U.S. equity in June of 2023.
Home equity refers to the part of your property that you own outright. It’s the difference between what your home is worth and what is still owed to your lender.
Your down payment affects your equity, for example. If you put a 20% down payment on a property, you would have 20% equity in your home before moving in. As you pay down your mortgage loan, your ownership and equity increase. Your equity can also rise based on comparable properties in your neighborhood market, or the improvements you’ve made to your home.
By refinancing or taking out your home’s equity, you have a convenient and low-cost opportunity to borrow cash at favorable interest rates. It can be a great source for savings or financing a variety of expenses.
You may be able to use your equity to merge high-interest debt and simplify your monthly payments. Your credit card interest rate may higher than your mortgage interest rate. This may also help you pay down your original debt faster while helping you save money on interest.
However, it’s important to know how the debt occurred. This way, you can avoid the same situation in the future and remain financially healthy.
Whether you’re currently working through your student loan repayments or looking to enroll, you can use your home equity to reduce your costs or obtain a lower interest rate. This is especially advantageous if your mortgage interest rate is significantly lower than education interest rates, which may range anywhere from 4% to 16%.
If you obtain a conventional mortgage loan, you’re required to use private mortgage insurance (PMI) if you don’t provide a down payment of 20% or more. PMI protects the mortgage lender if their borrower were to default on their mortgage. PMI is automatically cancelled once you reach 22% of equity, however, you can also request removal when you manage 20% equity.
You can use your home equity to finance renovations, upgrades, or repairs to your home and property. These improvements have the potential to pay for themselves with their return on investment. Additionally, the thoughtful renovations you complete may increase your home’s selling value.
You may be able to pay a lower interest rate when using equity for renovations instead of an alternative form of financing, like personal credit cards. By using a HELOC loan or a renovation refinance, you’ll have financing for your improvements without accruing more debt.
When you own a home, you can use the equity you’ve built up to help you achieve financial freedom. Be sure to speak with a Loan Originator about what options are best for your personal goals and financial position.
Ready to learn more? Contact us today to match up with a Loan Originator who will set you up for home finance success!
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
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