The Importance of Home Equity (And How it Helps You Build Wealth)

By
Real Estate Agent with Steinborn & Associates Real Estate

Home Equity Wealthy Guy In TieHome Equity is the key to your Net Worth, your Wealth, and your Well-Being. Those of us that aren’t among the top 20% richest people in America have 50 -60% of our Net Worth in our Home’s Equity. So, home equity is REALLY IMPORTANT!

Today we are going to talk about increasing your home equity, and thus your wealth, and well-being. The key is based on you investing money in your Mortgage.

Why should you take money you could spend and pay down the amount you owe on your mortgage?

  1. Your Mortgage becomes forced savings plan.
  2. Those savings are earning a guaranteed rate of return equal to the interest you didn’t pay on that amount of Principle you reduced.

How can you decrease the amount you owe and increase home equity and wealth?
The first thing that springs to mind is refinancing. Refinancing can be a great way to increase your home equity. Next is a special trick you can use: Bi-Weekly Mortgage Payments. Check out our video for details on this fantastic little trick. You can also get help from unexpected sources! If you happen to get rid of Mortgage Insurance Premium (MIP) payments, reduce insurance premiums, property tax reductions, or other lump sums (Work Bonuses, Tax Refund, Inheritance, etc.) you have a golden opportunity to pay down your mortgage! Even if you don’t find free or extra money set up your own savings plan. Use any extra money you can spare from your monthly budget and add it to your mortgage payment.

Even if you don’t find free or extra money, set up your own savings plan. Use any extra money you can spare from your monthly budget to add to your mortgage payment.

The most important thing to know is that the amount of equity you will acquire over time is substantial with even modest contributions to reducing your mortgage.

A few examples should stress the point – If we use a $200,000 Mortgage at 6% interest:

  • A refinance to 4% and continuing to make your old payment would accrue an extra 26,600 in equity over 10 years and your 30 year mortgage would pay off in 20 years providing you with 10 years of no payments
  • Bi-weekly payments of ½ of your monthly payment every 14 days a system which costs you nothing out of pocket would result in an extra $16,600 in equity over 10 years and result in paying off your mortgage 6 years early.
  • Making extra principle payments give results that vary with amount but for example you Get rid of MIP or in some other way paid an extra $200 per month on your $200,000 Mortgage you would gain an extra $33,000 in equity and pay off your mortgage 10 years sooner.

Obviously, the amount of wealth you can accrue depends factors that are specific to your situation: the size of your mortgage, your interest rate, and the amount and frequency of extra payments toward principle reduction.

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how to Acquire Wealth By Paying Off Your Mortgage

Comments (2)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Evelyn - Thank you for the excellent list of information about the importance of home equity and how it helps you build wealth.

Jun 27, 2013 09:09 AM
Evelyn Bruder
Steinborn & Associates Real Estate - Las Cruces, NM
CRS, GRI, ABR, E-PRO

You're welcome, John! Thank you for reading!

Jun 28, 2013 02:59 AM

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