What is Home Equity?
One way to look at home equity is the amount of your home you own outright. Put simply, home equity is the difference between how much your home is worth and the outstanding balance of all of the liens on your property. Liens are how much you owe on your property mortgage and any other debts you have secured by your home.
Home equity can increase in two ways.
Making payments towards the principal portion of your mortgage
Through appreciation, which is when your home’s value increases due to the market
It’s also important to remember that home equity can decrease too, sometimes completely wiping out a homeowner’s equity or worse, leaving it valued under the amount you owe on your home’s liens.
While not all homeowners have equity in their homes, some are “equity rich”. This means that the owners have at least 50% equity in their homes. 14 million homes in the United States were equity rich at the end of the first quarter in 2020. That amounts to more than 25% of the homes in this country.
Home equity is typically a homeowner’s most valuable asset, so it is important to understand how it works and to use it wisely!
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