Home Loans to Start Investing in Equity

One of the many benefits of home loans is equity. Of course, there are a number of other benefits such as finally owning your home, being able to modify your residence, gaining homeowner discounts on insurance and other incentives. However, if it were not for equity a home would not be considered an investment. For most people, it is not only an investment: it is the largest investment they will ever make.

Why is Equity Important

Equity is just a fancy word for ownership in a piece of property or business. When you have "equity" in something, you could sell your stake for cash. Home equity means that you own or partially own the value of a property. Once you have equity, you can put the equity to work for a number of tasks. For one, you can use the equity for loans to purchase improvements to the home, other assets or even luxury items. You additionally will be able to have a more secure retirement if you have equity in a home. Instead of continuing to work for years down the line, you can sell your equity for a large stake of immediate cash. The fact you can do this is what truly keeps you safe should an emergency expense arise.

How do I Build Equity

Building equity through a home loan is a simple concept, but it takes a lot of time and a handsome initial expense. Very few people purchase a home outright; homes are simply too expensive to buy for a person alone. Instead, people go to banks and other lenders for mortgage loans. This allows them to purchase the home, but they will not have any equity to begin with. When you have a mortgage, the amount of equity you have in the home is equal to your down payment plus any payments you have made toward your principal mortgage sum each month. This amount slowly builds over months and years as you take over a greater stake in the home. If you make high monthly payments, you can build equity faster. Making interest only payments means you will not build any equity in the home.

When Homes Lose Value

Homes are traditionally considered a very safe investment. Their value, on the whole, goes up over time. However, downturns in the market can drive the value of a home down sharply, and your equity will go with it. At times, it is even possible to be "upside down" in a mortgage. This means you would have negative equity, or would owe money, if you sold the house now and used the proceeds to pay off the mortgage. While people tend to panic about lost equity, there are a few key points to remember. One, if you are not planning on selling, the home's value is likely to recover over time. Two, if the same funds you invested in the home were placed in the stock market, their value would be down there as well. It is rare for home prices to drop without stock prices doing the same.