In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage. You can build equity by paying down your mortgage over time and through the home's appreciation.
You bought your home for $150,000 with a down payment of 10%, resulting in a loan amount of $135,000. You secured a 30-year fixed-rate mortgage at 4.5% with a monthly mortgage payment of $684.03.
|Your scenario after 7 years of making your mortgage payments, assuming 3% per year home appreciation (based on the national average):|
($135,000 - $17,515)
|Equity in Home||$67,518|
|If you had zero appreciation in 7 years, you’d still have equity of $32,515:|
|Equity in Home||$32,515|
Building equity is a critical part of homeownership and can help you create financial stability. It’s important to note that some markets appreciate faster than others. It’s also possible for home values to depreciate due to economic conditions, your home not being kept up, or a drop in neighborhood home values.