What Is Home Equity and How Can I Use Mine in 2024?
Home equity is the amount of your home’s total value that you own, with any mortgage lender owning the rest. Typically, as you pay off your mortgage, your equity increases, but there are other ways for your equity to rise.
Despite elevated interest rates and slowing home sales, home values have remained high, meaning homeowners in the U.S. still hold much of the equity gains made during the hot 2021-2022 market.
Having higher equity opens up homeowners to options that allow them to leverage their stake in their home for other ends.
For example: Should you get a home equity loan to pay for a much-needed vacation or your postponed dream wedding? What about tapping into those funds to pay for your basement remodel or to consolidate other debts?
Perhaps you’re looking to buy a home soon and want to know more about how to put your existing equity toward a new and spacious abode.
There’s quite a bit you should know about home equity, especially if you plan to borrow from it. Let’s take a look at what home equity is, how it grows over time, and why it’s so important to use it wisely.
What is home equity in simple terms?
Home equity is a homeowner’s financial stake in their property that they own free of their mortgage loan obligation. It’s calculated by taking the current value of your home minus your principal balance and the total of any additional liens that must be paid off before selling the property.
Current property value
–
Balance of remaining mortgage(s) and unpaid liens
=
Home equity
These added liens could be in the form of a second mortgage, outstanding property taxes, or child support owed. But if you don’t have any additional liens to account for, simply take your home value minus your unpaid principal to estimate your home equity.
