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By Zulika van Heerden
If you already own a home or in the process of buying one, then you
have probably heard a great deal about equity and the importance of
building it.
When someone is referring to equity, they are talking about the actual
difference between what the property is worth and what is owed on it.
The difference tells you how much value or equity you have in that
piece of property.
Your home equity would typically include the deposit and any additional
monies that have been used to pay down the principal. Building equity
is important because not only does it protect you from becoming upside
down in your mortgage (owing more than what the property is worth) but
it also allows you to obtain credit more easily in the event you would
like to put a deposit on another house or obtain a loan.
If you have been living in your house for a number of years and are
looking to move or perhaps even acquire an investment property, you can
use the equity in your home and put it towards a payment on another
property. It can also be useful if you need to borrow money to pay for
college or other expenses.
Equity is built over time using either amortization, appreciation, or a
combination of the two.
Amortization refers to the process of paying off the loan in full. When
a loan is amortized, it means that the loan is dispersed for a specific
time period and it has to be paid in full by a certain date. A
home loan is set up in such a way that the loan should be paid off
entirely over the course of the period of the loan.
he amount of principal that you owe will go down with every monthly
mortgage payment you make. Each payment you make also brings your
mortgage closer to amortization, which increases the amount of equity
that you have in your home. This process will take time in the
beginning, since your mortgage payment on a tradition fixed loan will
include interest and principal and your payments will be going more
towards the interest in the first few years.
If you want to build equity as quickly as possible, you can
increase your deposit or pay more than the required amount on your
mortgage payments. Doing this will also lower the amount of Private
Mortgage Insurance you have to pay in the event that you do not pay a
deposit of at least 20% of the purchase price of the home.
If you buy at the right time and in the right location, there is also a
very good chance that you will build equity by means of appreciation.
When your home appreciates, it means that the actual market value of
the property has increased since the time you initially purchased it.
Simply put, when appreciation rates go up, your property value goes
up.
The higher your property value, the more your home is worth. When your
house appreciates, you build instant equity in your home. Before the
real estate market cooled off, many people saw their property values
skyrocket in a very short period of time.
To
apply for a home loan OR refinancing No-Obligation Quote you
will have to fill out a short application form. You will then receive a
FREE quote from well established, nationally recognized lenders. You do
not need to decide now whether the loan is for you.
There is no obligation on your part. If you decide that it is not for
you, you simply do not have to accept the offer. You have nothing to
lose and everything to gain.
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