Equity is a word being tossed around a lot right now, especially with the way home prices have surged and then fluctuated over the last few years. But what does it really mean, and how can you, the homeowner, take advantage of what you’ve earned since you first made your purchase?

Even if you aren’t thinking about selling your home in the near future, it always pays to know exactly where you stand financially speaking. For example, imagine you have been patiently paying off your mortgage every month, and you only have a few years until your house is paid in full. You may be holding off on the celebration until you’re officially mortgage free. In the meantime, you might be pleasantly surprised to see how much equity you have built already.

Understanding your financial position starts with knowing how much your home is worth today. You can do that by booking your free home evaluation right here.

Calculating Your Equity

Interest rates vary, so we can’t show you exactly how much your net worth has grown since you first bought your house in a neat little chart. However, we can give you a ballpark idea. To start, remember that a portion of each mortgage payment goes to interest; the rest pays down some of your principal. The longer you whittle down your principal, the more equity you build.

Your bank could provide you with an amortization schedule so you can see exactly how much of your payment is going to the interest for the loan and how much is going towards paying off the principal. Here is a real-world example.

• After 1 year, a homeowner paid down their principal by around sixteen thousand dollars ($16,508.41)
• After 3 years, they will have paid it down by just over fifty thousand dollars. ($50,781.54)
• After 5 years, they will have paid it down by eighty-six thousand dollars. ($86,800.74)

This means that, after 7 years, they will have paid off almost one hundred & twenty-five thousand dollars of their mortgage. ($124,654.94)

BUT that isn’t even the entire story.

If all of this talk about equity has you inspired to buy a new home, the posts below can help guide you:

• Our Ultimate Handbook for First-Time Buyers
• Hidden Costs of Buying a Home You Need to Know Now
• 7 Amazing Benefits of Working with a Real Estate Agent

Where Real Equity Comes From

Chipping away at the principal and eventually becoming mortgage free is only one part of the equation. Your real growth comes from the appreciation of your home’s value over time.

For example, imagine you bought a house 10 years ago. To keep the math easy, let’s say you paid $500,000 for it. A decade later, its value goes up to $800,000, which is actually a realistic estimate given the direction of real estate prices over the long term!

The difference in your home’s current value and what you originally paid is all part of your equity. In other words, you have an extra $300,000 in purchasing power. That’s not even including the portion of your home that you have paid off over the years. That is also why homeownership is such a powerful tool when building wealth and why we believe in buying and holding real estate.

What Does Increased Equity Mean for You?

A six-figure growth in equity sounds fantastic on paper, even though it’s not actually money in the bank. The real question now is, what can you do with it? You have multiple options.

1. Hold on to the property. An increase in your home value doesn’t mean you have to take any action, at least at the moment. Real estate values might rise and fall during times of economic uncertainty. However, the long-term outlook is positive. If you hold onto the property, your equity will likely grow even more.
2. Invest in a second home. If you’ve paid off a significant portion of your house and it is now worth more than what you paid for it, you might qualify for a home equity loan. You can borrow against your home and fund the purchase of a second property, either as a rental unit or vacation home.
3. Sell your home. If you want to turn your equity into liquid cash, selling is a viable option. With the difference, you might decide to upgrade or downsize into a new house. Alternatively, you could move to a less expensive area and enjoy those excess funds.

The more your home sells for, the greater purchasing power you have for your next steps. The posts below can help you get results:

• Selling Your House in Hamilton? Here’s How to Make the Most of It
• 8 Important Things to Remember When Selling Your Home
• Why Home Sellers Need to Think More Like Buyers

Whatever your goals are for your future, the first step is to know what your home is worth in today’s market. From there, you can decide what you want to do next – whether it’s purchasing an investment property, downsizing to retire early or finally getting that cottage up north.

If you’re curious about buying or selling a home, our Burlington and Hamilton real estate agents can guide you through the process. Reach out to us right here or give us a call at 905 332 9223 to learn more.