How does home equity build over time?​

The main way your home equity will build over time is from you paying your mortgage. 

Home equity is the difference between the current market value of your home and the amount remaining to pay on your home mortgage. In short, it is the amount of home you own outright. If you hope to access your home equity, lenders will first look at the percentage of home equity you have. 

Find out how you can access your home equity by talking to a Loan Officer today! 

There is some simple math you can do if you are looking to see what percentage of home equity you own. For these formulas, you will need to know your mortgage balance as well as your home’s current value. You can find your home’s value with an appraisal or an online home valuation estimator. 

By taking your home’s current market value and subtracting your remaining mortgage balance, you will get the value of home equity you have. For the percentage, just divide that number by the current market value of your home and move the decimal of that final number two places to the right.  

There are several ways you can build up equity in your home. Some will happen over time, while others are things you can do to build your equity quicker. Here are a few of the ways you can build your home’s equity. 

Paying down your mortgage payments each month is the easiest way to build equity in your home. With each payment you make, your percentage of equity will increase, as you are essentially buying out the lender. 

While this is the easiest way to build equity in your home, as it is something you already have to do, it is also one of the slowest as you won’t reach 100% home equity until your mortgage is completely paid off. And since your monthly payments will also include interest on your loan, the entirety of your payments won’t add to your home equity. 

Housing markets are constantly changing, so if you notice homes in your area increasing in price, then your home’s value might also rise. If your home has increased in value since you got your mortgage, you can use the new value to find out how much your equity has increased. 

While appreciation can increase your home’s equity without much, or any, work from you, it is one of the most unpredictable ways to build equity as you never know when the housing market in your area will increase. And conversely, if home values drop in your area, you could end up losing equity in your home. 

Home improvements and renovations you make could increase your property value, which, similar to your home value appreciating due to the housing market, would increase your home equity. 

Keep in mind, the money you spend on home improvements will not necessarily be the amount your home value will increase by. Some home improvements will have a better return on your investment than others. 

If you decide to access your home’s equity to make improvements or renovations, the costs may be tax-deductible.* Talk with a tax expert to find out if any home improvements you plan to use your home equity for are tax-deductible. 

If you have the funds, making additional payments on your loan amount on top of your monthly payments is one way you could build home equity quicker. Making extra payments to the principal of your mortgage will reduce your total loan amount and increase the equity you have in your home. 

Talk with your Loan Officer to learn what the best way could be for you to make additional payments. 

As you get your original loan, making a larger down payment or getting a shorter loan term are two ways you could build your home equity faster.  

A larger down payment means you would have to borrow less and would help you start your mortgage with greater home equity. A shorter loan term would mean that you pay off your loan in fewer years and gain a greater amount of equity with each payment. Of course, shorter loan terms usually come with larger payments each month. 

There are three main options when you look to take out the equity you have in your home: cash-out refinance, home equity loan and home equity line of credit (HELOC). 

If you have gained equity in your home, a cash-out refinance will replace your current mortgage with one of a higher value, typically closer to the total value of your home, and give you the difference in cash. 

Instead of replacing your current mortgage, a home equity loan will work as a second mortgage. Home equity loans will give you cash upfront based on the amount of equity you have in your home.   

With a HELOC, you typically will have a line of credit you can draw on up to an approved amount that is based on your home equity. A HELOC with us gets you upfront cash based on the equity you have in your home with the ability to make additional withdrawals as you pay off your loan amount. 

The funds you will get from these loans can be used for a number of expenses. Talk with a lender today to start your application and find out how much of your home’s equity you could access. 

_{*Rate does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.} 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.}