Frequently Asked Questions on Home Equity
As home values continue to increase in Connecticut, many homeowners now have equity in their homes for the first time in years!
“The portion of mortgaged homes that were equity-rich in the fourth quarter of 2021 – nearly one of every two – was up from 39.5 percent in the third quarter of 2021 and from 30.2 percent in the fourth quarter of 2020.” – ATTOM
Here are some common questions that we get about home equity:
What is Home Equity?
The equity of your home is the market value of your home minus what you owe on your mortgage. In an ideal world, this is a positive number. If it is a negative number then your home is “underwater”.
How do I calculate my home equity?
Subtract your current mortgage balance by your home’s market value to get your home’s equity. For example, if your current balance is $100,000 and your home’s market value is $300,000, the equity in your home is $200,000.
What can I do with the equity in my home?
Here are some options:
- Refinance your home’s first mortgage and take cash out up to 80% of its appraised value. You can consolidate higher-cost debt, do home improvements or use as you see fit.
- Reduce your rate and/or eliminate your mortgage insurance. You can do this if you have at least 20% equity in your home.
- Take out a fixed-rate Home Equity Loan which is a second mortgage. A home equity loan uses your home’s equity as collateral. A home equity loan is a fixed-rate loan that involves a single disbursement of funds and a fixed monthly payment. Like refinancing a first mortgage, many homeowners take out a home equity loan to consolidate debt, improve their home, or make a large purchase. This is another option to #1 but the devil is always in the details as to which option is best for you. And sometimes, you can choose to do both.
- Take out a HELOC or Home Equity Line of Credit. This too is a second mortgage but unlike a fixed rate Home Equity Loan, this is a revolving line of credit tied to the Prime Rate which is variable. You use it when you need it, pay it back, and reuse it again and again. Make sure you understand any option you choose
- Take out a Reverse Mortgage if you are at least 62 years old.
- Sell your home (and make a profit)
- Do nothing
How do you find out what your home value is?
- Use an online home value estimator such Zillow or Realtor.com
- Ask a real estate agent for a free comparative market analysis
In the end, an appraisal, if required, will determine the ultimate value of your home.
How can I add value to my home?
The value of your home is dependent on a number of things, some you can control and some you can’t control. The primary areas that impact your home value are the neighborhood, the age of your home, the condition of your home, the size of your home, and any home improvements or upgrades. Some of the things that you can do to help add value to your home are:
- Improve curb appeal. Paint exterior, replace doors/window, landscape, …
- Renovate. Bathroom and/or kitchen renovations can help improve your home’s resale value
- Energy-efficient changes – replace and track energy-saving changes such as heating/cooling, insulation, replacement windows and doors, …