Real Estate Vocabulary – Equity

The real estate market is always shifting, and as we watch these changes unfold, it is essential to understand how they can affect you. Understanding how your equity can change and is influenced by the market can help you plan for the future.

To understand equity, imagine your home as a piggy bank. With every mortgage payment you make, a part of it goes toward the interest (what you pay the bank for lending you the money), and the rest reduces the outstanding loan amount, known as the principal. Your stake or “ownership” in the property grows as your principal shrinks. This ownership value is termed equity.

But if you aren’t planning on selling soon, why is equity important?

Well, equity isn’t just a static number. As property values in Denver rise or fall, the value of your home may do the same. So, even if you owe the same amount on your mortgage, the difference between what you owe and the home’s market value (your equity) could change. This can be leveraged in various ways:

Refinancing: Homeowners can refinance their mortgage, potentially securing a lower interest rate or taking out a portion of their home’s equity as cash.

Home Equity Loans or Lines of Credit: This allows homeowners to borrow money using the equity in their home as collateral.

Selling Power: If you do decide to move, a higher equity means you could walk away with more money from the sale, which can be used as a down payment for your next home or other investments.

Understanding and tracking your home’s equity can be a powerful tool for financial planning and future investments in the ever-evolving Denver real estate landscape. Remember, your home isn’t just a place to live; it’s also an investment. Make the most of it!