If you’ve kept up with the real estate market over the last few years, you’ve probably noticed it has been anything but what we would consider “normal.” Historically low interest rates, property values increasing exponentially, and houses selling within hours! In the last half of 2022, we saw an increase in interest rates which caused the market to shift a bit. 

We are currently still in a sellers market as there are still many buyers looking for a home and not enough sellers. While it is incredibly unlikely that we will see interest rates drop to 2% and 3% again, those low interest rates seem to still have an effect on our current market. Many people who purchased or refinanced in the last several years locked in the lower rates and now they don’t want to lose that as interest rates are back to 5% and 6%. While that math absolutely makes sense, one thing you also need to consider is the equity you have in your home!

Home equity is the value of your house that you actually own. To find out how much equity you have in your home, take the value of your home in today’s market and subtract how much you owe on the house which would be your mortgage. For example, if your home is worth $300,000 today and you have $200,000 left to pay on your mortgage, your equity is $100,000. You may be asking yourself, why does this matter to me if I bought my home in the last 3-4 years? Because you don’t build equity just by paying down your mortgage. You also build equity because the value of your home increases over time which is known as appreciation! Many homeowners who purchased a home just 2 years ago have gained something along the lines of $25,000-$50,000 in value just by simply owning the home. You also get to add to that how much you’ve paid down on your mortgage which also increases your equity. 

Why does equity matter? Because you can use equity as a down payment on your next home. As a first time home buyer you often have to have the cash saved up to use as a down payment to purchase a home. With equity, you can use the money from the sale of your home to purchase your next home.

Let’s stick with our original example of a $300,000 home in today’s market. You purchased that home for $250,000 in 2021 and you’ve paid down $10,000 on your mortgage over the last 2 years which means you owe $240,000 on your mortgage – please note that these numbers are for the sake of this example and actual numbers will vary based on your mortgage, home value, etc. If your home is now worth $300,000 that means you would have $60,000 in equity to purchase your next home! 

$300,000 (current value of your home) - $240,000 (how much you owe on your mortgage) = $60,000

If you purchased your home prior to 2019, you might be in for a big surprise as to how much your home is worth today. Home appreciation increased exponentially over the the past several years and your home could be worth way more than you realize. 

To find out how much equity you have in your home, fill out the information below for a free home valuation!

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