How to increase your equity and net worth
The current market value is always the baseline for determining home equity. When you purchase a home at market value, your down payment instantly gives you some equity. If you put down 20% of the home’s value, you have 20% equity. Then, as you pay your mortgage over time, your equity increases.
You also gain equity when your home appreciates in value. As home prices rise, your home’s value increases. Because the home is worth more, your net worth is also higher.
Finally, in addition to making mortgage payments and experiencing general trends that raise home values, you can choose to increase your equity by making renovations and home improvements that will further add to the value of your home.
How to leverage your equity for cash
There are several ways to access your home equity, and each option comes with its own individual lender’s terms with varying cash availability, interest rates, closing costs and fees, and repayment terms.
Your primary options come in four forms:
- Home equity loans allow you to access a lump sum of money through a loan with a fixed interest rate.
- Home equity lines of credit work like a credit card with a variable interest rate and typically allow you to borrow money for a 10-year period.
- Cash-out refinancing renews your existing mortgage at the current interest rate and pays you the difference between your new debt and old debt.
- Reverse mortgages allow homeowners over the age of 62 to cash in their equity through a loan that is repaid upon death or the sale of the home.