Equity in a Home Purchase
- When you pay rent, you are paying your landlord’s mortgage or adding equity to his or her bank account. However, when you have a home mortgage, you increase your degree of ownership in your home with every payment.
- A general rule is that if you intend to stay in your property for at least five to seven years, the costs of purchasing the home are more likely to be offset by accrued equity and increased housing value.
- In the event that equity in the home grows to more than a 20-to-80 percent loan-to-value ratio, you will be able to borrow against your equity in the home. This can be cautiously used should you need capital to pay for major purchases.
- If interest rates drop, you can refinance your mortgage at more favorable rates, or, once you’ve paid the entire mortgage off, borrow against the equity in your home to fund major purchases such as a second home or your child’s education.