Stern Market Minute: What Is Equity?
Channel: The Stern Team | KW Salt Lake City Real Estate
Date: 2023-09-12

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If you're looking to buy a home in Utah or you already own one, you may have heard the term "equity" thrown around. But what exactly is equity, and how does it affect your finances as a homeowner? Simply put, equity refers to the difference between the market value of your home and the remaining balance of your mortgage. For example, if your home is worth $500,000, and you owe $300,000 on your loan, your equity is $200,000. In other words, it's the portion of your home that you actually own – and that's a valuable asset that can help you build wealth over time.

So, how can you build your equity faster as a homebuyer in Utah? Here are four tips to consider:

Make a larger down payment: When you first buy a home, you'll likely have to take out a loan to cover the vast majority of the purchase price. However, if you can afford to make a larger down payment upfront, you can immediately start building equity. A larger down payment means a smaller loan amount, which means you'll owe less interest over time. Plus, a larger down payment can potentially lower your monthly mortgage payments, which can free up money to put towards other financial goals.

Focus on big home improvements: While it's important to maintain and upkeep your home, not all upgrades are created equal when it comes to building equity. Small cosmetic fixes may improve your home's aesthetic appeal, but they won't necessarily boost its value. Consider investing in major renovations that can truly enhance your home's functionality and square footage, such as adding a bathroom or expanding your living space. These types of improvements can add significant value to your home, which can translate to more equity.

Shift to biweekly payments: By making mortgage payments every two weeks instead of once a month, you can build equity faster and potentially save money on interest over the life of your loan. Biweekly payments mean you'll make one extra payment per year, which can add up quickly and shorten your mortgage term by up to 5-6 years. However, be sure to check with your lender to see if they offer this option and if there are any fees associated with it.

Let your home appreciate: One of the most significant factors affecting your equity is market appreciation. This refers to the overall increase in home values over time, and it's something that's largely out of your control. However, you can still capitalize on this trend by keeping an eye on market trends and potentially selling your home at the right time. When the market is hot, you may be able to sell your home for a higher price than you paid, which can give you a sizable influx of equity.

Building equity is a smart and effective way to build wealth over time as a homeowner in Utah. By making a larger down payment, focusing on significant home improvements, shifting to biweekly payments, and keeping an eye on market trends, you can maximize your equity potential.  
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