The importance of understanding home equity
Category RealNEWS
"Many people only seem to focus on their property's function as a home, and often, not enough attention is paid to the investment factor, other than the fact that real estate is generally considered to be a solid long-term investment. However, by understanding the concept of equity, you can make a big difference in the way you manage your finances, conduct home improvements, and generate capital over time." says Gerhard Kotzé, CEO of the RealNet property group.
Home equity is the financial stake you have in your home. To put it simply, it's the percentage of your property that currently belongs to you, as opposed to your mortgage lender. And, if you're like the majority of homeowners, it's likely a large portion of your net worth.
This equity is a valuable asset that you can use to help you financially, and as you continue to make payments over the years, your home's market value will likely appreciate, increasing the equity you have in your home.
So, with this in mind, why is it important to view the equity you have in your home as more than just a number on paper?
Gives you access to attractive borrowing options with low interest rates
One of the best aspects of home equity is that you can use it as collateral for loans. This provides you with a number of great borrowing options, typically at much lower interest rates than other unsecured loans. You can even use these loans to increase the value of your home further by putting the money back into your home through renovations. However, it's also important to borrow responsibly, as failing to pay off these loans could put your property at risk.
Acts as financial security and a source of wealth
In a way, home equity is almost a type of forced savings because you're obligated to pay your monthly repayment each month, and this cash is then converted into home value, which will help you build your wealth over time. Home equity is also the largest financial asset most people have and can provide security in the case of a financial emergency.
Assists in retirement planning
Home equity can be exceptionally useful when you're planning your retirement. Some people choose to downsize by selling their property, purchasing a cheaper home, and then using the rest of the capital for retirement income.
Home equity can quickly become your most valuable asset if used correctly. But if you're unsure of how to do so, it might be a good idea to chat with a financial planner
Author: RealNet
