3 long term benefits of home equity

Buying your first home is an exciting process. It’s fun to view houses, research neighborhoods and dream about how to turn a house into a home that fits your life. But as many new homeowners can tell you, it’s also a challenging process. It’s expensive to buy a house, and there are a lot of upfront costs like closing costs, moving, home decor, renovations and more that can make it a significant financial challenge. For many new homeowners, the first few years of homeownership can feel overwhelming. Sometimes, renting may even seem like a better option, especially when a new home is expensive or a repair is needed. But there’s one advantage homeownership has over renting that has long-term benefits – home equity.

Building wealth through home equity
Buying a house is a significant financial investment with long-term benefits because, over time, you build equity. Every mortgage payment you make reduces the principal balance of your home loan, which increases the equity you have in your home. The longer you hold onto your home, the more equity you build.

As housing prices rise, the value of home equity does, too. According to the St. Louis Federal Reserve, U.S. homeowners have a record high of $32 trillion in home equity. But what does that mean for the average homeowner? Data from the Intercontinental Exchange Monitor shows that the average homeowner may have up to $214,000 in tappable equity, with 60% of homeowners holding at least $100,000. Tappable home equity is the amount you have built up that you can access for home equity loans or a cash-out refinance. Typically, lenders only allow homeowners to borrow up to 80% of their home’s value and leave 20% untouched as a safety cushion.

Long-term benefits of home equity
Over the life of your home, the equity you build has several advantages, including:

• Stable housing costs: If you have a fixed-rate mortgage, your monthly payments remain the same for the duration of your loan. If you value predictable living costs, buying a home is more stable than renting, as you can be subject to a rent increase each time your lease comes up for renewal, typically around 6-12 months.
• Home appreciation: Homes have historically appreciated inv value over time, which means that your house will only become more valuable as time goes on. For example, between 2010 and 2022, home prices increased by 54%, according to USA Facts. For current homeowners, this means the value of their home has likely increased significantly, as has their home equity.
• Added value: One of the things that homeowners love about owning their homes is that they have the freedom to make changes. They can add extra square footage, update the interior or add amenities. From a home equity perspective, this is like investing more money into your savings account. The changes you make increase the value of your home over time, increasing the equity you accrue over time.

Don’t miss out on the long-term benefits of home equity
Building up home equity as a homeowner has a lot of advantages. You can use that equity to fund renovations, pay off debt, pay for education costs or whatever you need. The most important thing to know about home equity is that it builds up over time and is always there. All you have to do is make your monthly mortgage payments. For homeowners, it’s one of the most significant benefits of owning a home and has long-term value. So, if you’re ready to buy your first home and start building equity, contact your local PRMI loan advisor today. Or, if you are a current homeowner and would like to utilize your home equity with a cash-out refinance or home equity loan, we can help, too!