Blog Buy and Sell Understanding Home Equity: What it is and How it Benefits You

Understanding Home Equity: What it is and How it Benefits You

By Mel Marzahl, September 28, 2023

Owning a home is a significant achievement, and it can also be a smart financial move. Central to this is “home equity.” But what exactly is it, and how does it work? Let’s break it down in simple terms.

What Is Home Equity?

Home equity is the portion of your home’s value that you truly own – your stake in your property. It’s what’s left when you subtract your remaining mortgage balance from your home’s market value.

Home Equity = Home’s Market Value – Remaining Mortgage Balance

 

How Does Home Equity Grow?

Home equity increases over time through:

  1. Mortgage Payments: Every time you make a mortgage payment, a portion of it goes toward reducing the principal balance of your loan. As you make consistent monthly payments, your equity in the property grows.
  2. Home Value Appreciation: The real estate market isn’t static; it can go up or down. When the value of your home increases due to market trends or property improvements, your home equity rises without you having to do anything.
  3. Down Payments: The initial down payment you made when purchasing your home is essentially instant equity. The larger your down payment, the more equity you start with.
  4. Home Improvements: Renovations and upgrades can boost your property’s value, increasing your home equity. Choose improvements wisely, as not all will provide a full return on your investment.

Why Does Home Equity Matter?

  1. Borrowing Power: You can use home equity as collateral for loans with lower interest rates, ideal for projects, education, or emergencies.
  2. Wealth Building: As your home equity grows, so does your overall net worth. This is why your home equity can be critical to your long-term financial planning and retirement strategy.
  3. Selling or Refinancing: When you decide to sell your home or refinance your mortgage, a higher equity stake can lead to better terms, lower interest rates, and larger profit when selling.
  4. Financial Flexibility: Home equity can act as a safety net during challenging times. It provides a cushion in case of unexpected expenses or a job loss.


Protecting Your Home Equity

While home equity can be a valuable asset, it’s important to manage it responsibly:

  1. Avoid Overleveraging: Don’t borrow against your home equity excessively, as it could put your home at risk if you struggle to make payments.
  2. Regular Maintenance: Keep your home in good condition to preserve its value and prevent any potential depreciation.
  3. Consistent Payments: Make timely mortgage payments to reduce your loan balance and build equity faster.
  4. Home Value Monitoring: Keep an eye on your home’s market value and market conditions to assess your overall equity situation. I provide clients with automated monthly updates on their home’s value and a more detailed yearly assessment to keep an eye on their investment.

In a nutshell, home equity is your ownership of your home. It grows as you make payments, your home’s value increases, and it has valuable financial uses. Manage it wisely to build wealth and secure your financial future.

If you’re interested in buying a home, investing, or making a move, connect me for a quick consultation. You can call or text me or start by reading my bio, and testimonials, or finding me on Instagram to learn more about what it’s like to work with me.

Mel Marzahl

Broker | OR

She/Her

Raised in the Pacific Northwest, Mel became a passionate advocate for homeownership and investing in real estate after buying and selling her first home. What drew her to it was realizing the significant financial impact the right investment property can make and learning how much having a home to truly call your own can improve your quality of life. Her specialties are working with first-time home buyers and sellers yet she is fluent in all aspects of residential real estate. She is trained extensively in real estate negotiation, holding both the CNE (Certified Negotiation Expert) and RENE (Real Estate Negotiations Expert) designations. Mel knows that with all the technology available to buyers and sellers, one of the best skills a REALTOR® can have is knowing how to be a collaborative negotiator to get the best outcome for their clients. After a decade-long career working in operations and client service for creative companies, Mel earned her Broker’s license and made the move to real estate. She listens to her client’s needs and aims to treat everyone involved in a transaction with honesty and integrity. She loves getting to know her clients, their wants, and needs to ensure they get the highest level of service Mel is known for. Mel brings creativity and an eye for detail to the table with a background in art and events. She enjoys a remodel or renovation project, has a soft spot for old craftsman homes, loves helping first-time buyers, and educating her clients on the selling and purchasing process. She believes in staying up to date on market trends, technology, and tools available to real estate agents. This gives her an edge when it comes to marketing properties and communicating with her clients. When Mel is not working in real estate she is volunteering with the Red Cross, gardening, hosting dinner parties, or relaxing at home on Bull Mountain with her husband, son, two big dogs, and a handful of chickens.
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  • T: 503-443-5382
  • mel@livingroomre.com

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