Understanding Equity


After years of stagnation in the housing market some people are finally starting to see the equity in their homes grow again. This has opened up opportunities for people to begin using that equity if they so wish by either selling their home – which again many people have been desperate to do – or by borrowing against the value of the property.

Some might say that 2014 is the perfect time to sell your home, as the forecast for the housing market is looking increasingly bright. If you’ve always wanted to upgrade or if you’re looking to save money with a smaller property that is easier to maintain, now might well be the time to put your house on the market. However, it’s important to understand the concept of home equity and the options available to you before you rush into a selling decision.

What is Equity?

Home equity, in its most basic sense, is the difference between how much your home is worth and the debts secured by your home, including the mortgage. Your initial home equity was acquired when you made the first down payment on your property. Home equity rises in two ways, including when you make mortgage payments and when the value of your house increases on the market. Most well-maintained homes increase in value and houses in particular areas can become more valuable very quickly, particularly in London.

The Rise and Fall

During the 2007 financial crisis and subsequent recession, many homes lost their value and this meant that equity was reduced for their owners. In extreme cases, some people ended up with no equity at all on their properties. However, now that the market is recovering and more people are interested in buying homes, equity is recovering and homeowners have more options for tapping their home equity potential.

How to Utilise Your Home Equity

There are many ways in which you can use your home equity but unless you are taking the simplest option of selling your home and downsizing, it’s wise to proceed with caution and to do as much research as possible into the different methods as each will have their different benefits and drawbacks.

A second mortgage or a home equity loan is a lump sum of money that must be repaid over a fixed time period. You will have to make monthly payments and the amount you can borrow will depend on how much equity your property has. A home equity line of credit or a HELOC allows you to borrow money using the equity of your home as collateral. This is a flexible loan because money can be borrowed as and when the owner requires it. Reverse mortgages are available to those over 60, with no obligation to pay until death or the home is sold. This is a popular option for pensioners who wish to supplement their income through monthly payments or a lump sum.

Leave a Reply

Your email address will not be published. Required fields are marked *