7 Things Hamilton Homeowners Should Know About Home Equity

If you've owned your Hamilton home for many years, you may have built up a significant amount of equity without thinking about it very much.

Home equity is simply the portion of your home's value that you own. It's generally the current value of your home minus what you still owe against it, including your mortgage and other debts secured by the property.

But what does that actually mean for you?

Here are seven things Hamilton homeowners should understand about home equity.

1. Your Home Equity Isn't the Same as Cash in the Bank

If your home is worth $800,000 and you owe $300,000 on your mortgage, you have approximately $500,000 in equity.

That doesn't mean you have $500,000 sitting in an account that you can simply spend.

To turn that equity into cash, you generally need to sell the property or borrow against it.

2. Paying Down Your Mortgage Can Increase Your Equity

As you pay down the principal on your mortgage, the amount you owe decreases.

Assuming the value of your home remains unchanged, that means your equity increases.

The other factor is the market value of the property itself. If the value rises, your equity can increase; if the value falls, your equity can decrease.

3. Your Equity Can Change Even If You Don't Do Anything

You don't have to renovate your kitchen or make extra mortgage payments for your equity to change.

Changes in the market value of your home can affect the amount of equity you have.

That's one reason it's useful to think of equity as a snapshot rather than a guaranteed number.

If you're curious about your current position, an up-to-date assessment of your home's market value is an important starting point.

4. You May Be Able to Borrow Against Your Equity

Homeowners may be able to use some of their home equity as security for borrowing.

Depending on your circumstances, options can include a home equity line of credit, a home equity loan or a second mortgage. These products have different rules, costs and risks, so it's important to speak with a qualified financial professional or lender before deciding whether borrowing makes sense.

Remember that when you borrow against your home, the home is being used as security for that debt.

5. Equity Can Be Part of Your Next Home Purchase

If you're thinking about moving, the equity in your current home can become an important part of the financial picture.

For example, selling your current home may allow you to use the proceeds toward the purchase of another property.

This can be particularly relevant for homeowners who have owned their home for decades and are considering a move to something smaller.

But don't confuse the equity in your home with the amount you'll have available after selling. Selling costs, mortgage balances and other expenses need to be considered.

6. Downsizing Can Change How You Use Your Equity

For some Hamilton homeowners, the question isn't simply "How much is my home worth?"

It's "What do I want my home and my equity to do for me at this stage of my life?"

Selling a larger home and purchasing a less expensive property may potentially reduce housing costs while releasing some of the equity tied up in the current home.

For others, staying put may make more sense.

There's no universal answer. It depends on your housing needs, finances and plans for the next stage of your life.

7. A Reverse Mortgage Is One Option—but It Isn't the Only One

Some homeowners aged 55 and older may qualify for a reverse mortgage, which allows them to borrow against part of their home's value without selling the home.

However, a reverse mortgage has costs and consequences that need to be understood. Interest accumulates, rates are generally higher than conventional mortgages or HELOCs, and the balance is generally repaid when you sell, move out, or the last borrower dies.

Other options may include selling and downsizing, refinancing or using another form of secured borrowing.

This is an area where speaking with a qualified financial professional is important.

Your Home Equity Is Part of Your Bigger Picture

For many homeowners, their home represents one of their largest assets.

Understanding your equity can therefore be useful whether you're planning to stay where you are, renovate, refinance, move to another home or consider downsizing.

If you're a Hamilton homeowner wondering what your current home might mean for your next move, I'm happy to have a conversation about the real-estate side of that decision.

Sincerely,

Mike McCarthy, MBA
REALTOR®