Understanding Home Equity with Cliffco Mortgage
If you’re purchasing a home or if you’re already a homeowner, a term you hear often is “home equity.” You may already know that it’s important to build equity in your home and that it’s valuable, but you might not be sure of what it is and how it works. You also hear the term “equity” in connection with loans, reverse mortgage loans and refinancing a mortgage. At Cliffco Mortgage Bankers, we help our customers get the most out of the equity they have in their home, so we want to explain the ins and outs of home equity so you’ll understand how it can help you.
What Is Home Equity?
Home Equity is “the difference between the market value of your home and the mortgage balance on the property,” according to the San Francisco Chronicle. If you have a mortgage, it’s essentially the part of the loan that you’ve already paid off. When you’ve paid off the entire mortgage, your equity is the entire value of your home.
So if you own a home worth $500,000 and you owe $400,000 on the mortgage, your equity in the home is $100,000. Note that we give the amount the home is worth when calculating equity, not the purchase price. that’s because home prices usually appreciate over time which means the home you buy likely (but not always) will be worth more than what you paid for it.
It’s important to note that home equity is what the Chronicle calls “a paper value.” It doesn’t get converted to cash unless you sell the home or refinance your mortgage. Another concept to keep in mind is leverage. When calculating appreciation, it’s based on the value of the property, not how much you’ve personally invested in it. So if you buy a $500,000 home which appreciates by 10 percent or $50,000 and put a down payment of $100,000, your investment increases to $150,000 which is a 20 percent profit.
How Cliffco Mortgage Bankers Can Help You Can Use Home Equity
Many people use the equity in their home to get loans to pay for significant expenses like college costs and home improvement, according to the Federal Trade Commission. You can tap into your equity by setting up a loan or a line of credit.
Among the services offered by Cliffco Mortgage Bankers that can help you make the most out of your equity is refinancing. You might want to build up your equity by refinancing your mortgage into one with a shorter amortization, or repayment schedule. You can also pull equity out of your home to pay of debts or make purchases like home improvements which can actually increase the value of your home.
Another way to gain access to your home equity is with a reverse mortgage loan. A reverse mortgage, known formally as a Home Equity Conversion Mortgage (HECM), is an option for homeowners over the age of 62. This loan allows you to access your equity to obtain tax-free funds, without having to make monthly mortgage payments. You can use the funds to pay off an existing mortgage, or other debts, and improve your cash flow, all while continuing to live in your home and maintaining title. After the homeowner’s death, or if the owners cease to use it as a primary residence for more than a 12 months, an estate can pay off the reverse mortgage or sell off the home.
Talk to Cliffco Mortgage Bankers and we’ll help you determine how much equity you have in your home and what your options may be for expanding that equity or tapping into it, if you choose. We can help you understand equity. Give us a call at (516) 408-7300 and Contact us today!