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What Is Home Equity?

3/12/2017

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What is Home Equity?

What Is Home Equity?

Equity is the value of the unencumbered interest you have in your property. The value of your interest in the property is determined by comparing the market value of the property with the amount owed on the property. For example, if the current market value of your home is $700,000, the balance you owe on your mortgage is $200,000, and you have no additional liens on the property, then the equity you have in your home is $500,000.
 
The equity you have in your home changes as the value of your home changes, which can be affected by how well you maintain your home, whether or not you update and improve your home, and fluctuations in the real estate market.
 
You gain equity in your home when you make a down payment, pay down the principle of your mortgage, complete home improvement projects that add value to your home or when the market value of your home increases.
 
You lose equity in your home when you take out a second mortgage, use a home equity line of credit, have a lien placed on your home, do not maintain your home in a way that retains your home’s value or when the market value of your home decreases.
 
While the purchase price of your home reflects what your home was worth at the time of purchase, it has little to do with the current value of your home. This means that whether you paid $300,000 or $2,000,000 when you purchased your home, the current value of your home may be a very different number.
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Why Does Home Equity Matter?

For most homeowners, the equity they hold in their primary residence is a significant portion of their overall wealth. For many, it makes up the largest portion of their net worth, which indicates just how important equity can be. This also shows that increasing the equity you have in your home is a way to increase your net worth.
 
The equity you have in your home is an integral part of determining your potential profit if you choose to put it on the market, which, in turn, is essential in determining how much you can afford to spend on your next home.
 
You can also use a percentage of your equity as collateral in order to obtain a home equity loan (commonly referred to as a second mortgage) or a home equity line of credit. This means that, while equity is not a liquid asset, it can be used as collateral to help you obtain necessary funding to cover medical bills, pay college tuition, pay down higher-interest debts or fund your retirement. You can also borrow against your equity to pay for home improvements that may increase the value of your home.
 
If you would like to learn more about what your home is currently worth and the potential sale price of your home in today’s market, contact Nora Davis.

AimeeJo Davis-Varela is a freelance writer specializing in real estate, sustainable home improvement, eco-friendly landscaping, green living and travel writing. She is also the owner of Mind Your Manors, which provides second home management services.
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  • Home
  • Featured Listings
    • Ojai Valley Homes for Sale >
      • Rancho Royale
      • Royal Oaks
      • 164 North Alvarado Street
      • 509 North Blanche Street
      • 40 Almond Avenue
      • 289 Riverside Road
    • Ventura County Homes for Sale
    • Nearby Homes for Sale >
      • 29443 Highway 33
    • Lots and Land for Sale >
      • 7205 Rose Valley Road
    • Commercial Properties for Sale >
      • 907 Bryant Place
    • Commercial Properties for Rent >
      • 2223 Eastman Avenue
    • Sold Properties >
      • 225 East Oak View Avenue
      • 12200 Ojai Santa Paula Road
      • 385 Sunset Avenue
      • Roca Vista Ranch
      • 168 Fairway Lane
      • 343 Apricot Street
      • 283 Burnham Road
      • 276 Running Ridge Trail
      • 1202 Loma Drive 102
      • Little Orchard Farms
      • 1475 Buena Vista Street
      • 474 Avenida de la Vereda
      • 1084 Woodland Avenue
      • 4239 Grand Avenue
      • 910 Spring Street
      • 775 Spring Street
      • Frog River Ranch
      • 75 High Street
      • 405 West Ojai Avenue
      • 135 Wormwood Street
      • 921 Patricia Court
      • 12523 Treeranch Road
      • 755 Spring Street
      • 10802 Oak Knoll Road
      • 1205 Fierro Drive
      • 1202 Loma Drive 122
      • 104 East Warner Street
      • 13382 East Sulphur Mountain Road
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      • 1188 Fierro Drive
      • 8577 Liveoak Avenue
      • 10248 Ojai Santa Paula Road
      • 1210 South La Luna Avenue
      • 2899 Matilija Canyon Road
      • 1114 Alviria Drive
      • 106 East Eucalyptus Street
      • 913 Gardner Avenue
      • 214 Eucalyptus Street
      • 709 Lemon Grove Avenue
      • 60 Watkins Way
      • 1330 South La Luna Avenue
      • 350 Old Grade Road
      • 9972 Creek Road
      • 1923 Meiners Road
      • 12605 Highwinds Road
      • 240 Feliz Drive
      • 11373 Puesta Del Sol
      • 11311 Creek Road
      • 1116 Del Nido Court
      • 802 El Toro Road
      • 131 West Oak View Avenue
      • Lucky Q Ranch
      • 291 Larmier Avenue
      • 1577 Kenewa Street >
        • 1577 Kenewa Street Floor Plan
      • 300 Del Norte Road
      • 707 Mesa Drive
      • 46 Olive Street
      • 616 West Heather Street
      • 805 Park Road
      • 407 Tico Road
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      • 562 Thomas Street
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      • 1923 South Hill Road
      • Gateway Plaza
      • 250 El Camino Drive
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      • 990 Loma Drive
      • 1273 South Rice Road #72
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      • 366 Ridgeway Place
      • 10692 Encino Drive
      • 210 Del Norte Road
      • 1175 Camille Drive
      • 10248 Ojai Santa Paula Road
      • 125 Prospect Street
      • 126 Valley Ridge Street
      • 434 South Carrillo Road
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      • 142 Don Ricardo Way
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      • Creek Road Three Bedrooms + Office
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      • Choosing a Real Estate Agent
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