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We all understand that homeownership means that we own our home in partnership with the mortgage lender. Until the mortgage is paid off, the part that you truly own or can lay claim to is the equity that you have built up.
The equity in your home is the value of the property against the current principal value of the mortgage on it. So if your home is worth $400,000 and your mortgage balance is $300,000, the equity in your home is $100,000. This is your portion of the ownership. In this case, you have 25% equity in your home.
Equity is an asset. And the more equity you have, the better. Some people even refer to it as a form of ‘forced savings”. Unfortunately, there are only a couple of limited ways to increase your home’s equity. One is to decrease the debt (mortgage) and the other is to increase the value. You can address either actively or passively depending on your resources and your goals.
Decreasing Your Debt
Decreasing your debt (principal mortgage balance) can be done in two different ways. By taking a shorter-term mortgage, your principal balance decreases exponentially over a longer period of time. This leaves you paying less in two ways 1) the total term is reduced and 2) the principal reduces more quickly so you are paying less interest and more principal with each payment.
Another way to decrease your mortgage debt is by increasing your payments. Every additional dollar you pay above your required payment will serve to reduce your debt by that amount and increase your equity.
Increasing Your Value
The market your home is in is a large factor in its value. Here in California, we have seen home prices increase substantially over the years and with it, homeowners’ equity. We all hope that our home will increase in value and that has happened in growing areas all over the United States. But in certain markets, that is not always the case. What can you do in this case?
Investing in your home often will increase its value, primarily if you are making substantial upgrades to kitchens and bathrooms. It’s important to understand that these improvements can be costly in themselves and will only be valued for what the market will bear in comparables so choosing the projects that have the highest return on investment is critical for equity building. Making sure your home is maintained at all times also can ensure its marketability and value.
Many people look to the equity in their home for financing to pay off consumer debt or refinance. If you are looking for a refinance or mortgage equity loan in Walnut Creek or anywhere in the state of California and need to talk to a mortgage professional, give our specialists a call. Contact us at Bridgepoint Funding to speak with one of our licensed California mortgage brokers. (925) 478-8630