For many homeowners, a mortgage payment may feel like just another monthly bill, but it’s actually working quietly in your favor. Each payment helps build equity, one of the most powerful financial benefits of homeownership.
Here’s a quick look at how equity grows and the smart ways you can use it.
What Exactly Is Home Equity?
Your home equity is the portion of your home that you truly own. It’s calculated by taking your home’s current appraised value and subtracting what you still owe on your mortgage. As your balance goes down, and your home value goes up, your equity rises.
How Mortgage Payments Build Equity
Mortgage payments build equity in several ways. First, each payment reduces your loan balance through principal repayment, and over time, a larger share of each payment goes toward that principal, increasing your ownership stake. Additionally, making extra payments, whether by adding a little each month to the principal or making one full additional payment per year, can accelerate equity growth. Finally, rising home values can increase your equity even without extra payments, as property appreciation boosts your home’s market value.
Improvements Equal Instant Equity Boost
Upgrading your home, such as kitchen renovations, bathroom remodels or adding energy-efficient features, can increase your home’s value, creating instant equity.
Smart Ways to Use Your Home Equity
Depending on a homeowner’s individual goals and financial situation, there are several ways equity can potentially be used. Some borrowers may choose a Cash-Out Refinance to replace their existing mortgage while accessing a portion of their equity. Others may decide to sell their home to convert equity into funds for upsizing, downsizing or relocating. Homeowners may also explore using their available equity to invest in rental properties or other long-term assets, when appropriate for their circumstances.
Why Equity Matters
Building home equity can help you grow long-term wealth, gain financial flexibility, strengthen your net worth and create opportunities for future investments.
Ready to explore your options?
Contact one of our Mortgage Representatives today to assist you in meeting your homeownership goals!
Opinions expressed above are the personal opinions of the author and meant for illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Terms, qualifications and other restrictions apply. Member FDIC, Equal Housing Lender, RCB Bank NMLS #798151.
