How Equity Builds in a Home

Happy Monday!  I hope everyone is looking forward to the Thanksgiving holiday and have fun plans on the agenda.  Whatever your plans, blessings to you and your family for a wonderful Thanksgiving!

The Keeping Current Matters (KCM) Blog had an interesting article this morning that explains how important homeownership and equity help build wealth that I wanted to share.

There are many reasons, both financial and non-financial that homeownership remains an important part of the American Dream.  One of the biggest reasons is the fact that it helps build family wealth.  Recently, Freddie Mac wrote about the power of home equity.  They explained:

“In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage.  You build equity by paying down your mortgage over time and through your home’s appreciation.  In a nutshell, your money is working for you and contributing toward your financial future.”

They went on to show an example where a person bought a home for $150,000 with a down payment of 10% ($15,000), resulting in a loan amount of $135,000.  The buyer secured a 30- year fixed rate mortgage at 4.5% with a monthly mortgage payment of $684.03 (not including taxes and insurance).

After 7 years of making mortgage payments and assuming the historic national average of 3% per year home appreciation:

Amount Borrowed $135,000

Principal Paid $17,515

Amount Outstanding $117,485

Appraised Value $185.003

Amount Outstanding -$117,486


And that number continues to build as you continue to own the home.

Bottom Line:  Home equity is important to building wealth as a family.  Referring to the first scenario above, Freddie Mac explained:

“Now, if you continued to rent, and made the same payment of $684.03 per month, you’d have zero equity and no means to build it.  Building equity is a critical part of homeownership and can help you create financial stability.”

If you want to explore your options of creating wealth through homeownership, we are here to help.

Have a great week and as always, The Cameron Team is here for all your real estate needs.

Happy Thanksgiving!

About the Author
Melanie Cameron
Listing Specialist and Team Leader of The Cameron Team. Have questions about the Wilmington real estate market or selling your home? Give Melanie a call at (910) 233-2840.