Home Equity

Building Home Equity

In finance, 'equity' is the total assets minus any liabilities associated with them. To simplify, it is a calculation to determine how much of what you ‘have’ is actually ‘yours’.

If you have purchased a home, consider your home’s market value the ‘asset’ and the balance of your mortgage/other liens associated with your home a ‘liability’. Let’s break it down:

The market value of your property
MINUS
The balance of your mortgage/other liens associated with your home
EQUALS
Your home equity

Example:
The current market value of Delilah’s home is $450,000. She has a principal balance (amount owing) of $300,000. This would mean her home equity is $150,000 ($450,000 - $300,000).

Pretty simple hey?

So Why Should Home Equity Matter?

Home equity can benefit you financially in the future.

• The market value of your home may increase, therefore increasing the amount of home equity you have
• If you require funds for a large investment such as a renovation, advanced education, buying another home, or even to consolidate your debt, home equity can help; it can commonly be used towards a Home Equity Line of Credit (HELOC). Creating a line of credit through a Home Equity Line of Credit (HELOC) often has the advantage of securing lower rates, essentially saving you money. This is because you already own a home, so unlike an unsecured loan, you are simply borrowing against your home which provides less risk to the lender.
• It’s a financial investment that often doubles down as a necessity. Everyone needs a home to live in, so why not ensure the money you pay for your home is going right back into your pocket?

Considerations Regarding Home Equity

Down Payments:

It doesn’t matter whether you already own a home or you’re a first-time home buyer, the size of your down payment on your home can affect how much home equity you have and how quickly it grows.

This is because the size of your down payment will affect the size of your mortgage, likely influencing the amortization of it and whether you decide on a fixed or variable rate.

So how do these decisions affect your home equity? They are all a factor in how much money from each payment goes towards your outstanding principle and how much goes towards paying interest. If more money is being paid towards your outstanding principle, your balance lowers, and your home equity increases quicker.

Risks:

Many benefits exist over growing your home equity, but there are certain situations which may impact you negatively. The market value of your property is influenced by external factors within the financial market, which means that if the market dips you may run the risk of losing some of your equity upon resale.

However, more often that not the opposite is true, and many homeowners are finding themselves increasing their home equity due to overall higher resale values.

Renting Vs. Owning

There are many debates over why renting or owning is a better option, and most usually come down to the person they pertain to. One of the well known benefits of renting is that you aren’t usually responsible for costs associated with maintenance and repairs to your unit. As an owner, if something goes wrong it is up to you to fix it.

Many people view this as high risk, but when you take into account the amount of money you are already putting towards your home equity with each payment you make, the benefits will generally significantly outweigh the costs to any necessary repairs or upkeep.

How Do I Start Building Home Equity?

The main requirement is clear – you must FIRST own your own home!

Entering the housing market can be a challenging, exhausting process (which is why I’m here to help)! I’m Kyle Benzies (licensed mortgage broker) and I would love to help you take the first steps towards owning your own home by getting you pre-approved for a mortgage.

To explore ways to begin building your home equity or to chat about other mortgage solutions, give me a no-risk call!

***other conditions may apply to anything listed above. The information provided on this page should NOT be implicitly relied upon, and may not be 100% up to date. It's best to contact us for the most current conditions/program offerings for first time buyers***