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Understanding The Role of Equity

Author: Ryann Cairns

Understanding the role of equity in a re-mortgage Equity can be a tremendously important factor in a re-mortgage, especially if you are looking at re-mortgaging your home in order to raise some much needed cash. First, let's take a look at what equity is and how you build it into your home.

Positive equity is the amount of money your home is worth above and beyond the payoff balance on your mortgage loan. Because market values shift, dependent upon a variety of factors, it is entirely possible for your home to be worth significantly more than the amount of money you owe on your mortgage. One of the primary ways this occurs is when property values increase. This generally occurs as a natural course of events, without much effort on the part of the homeowner. If there has been an increased demand for the type, style or location of your home, your property value can increase almost overnight, raising your equity as well.

Another manner in which a homeowner may see a rise in their property value is when they make home improvements. The addition of luxury features and security systems as well as landscaping can raise the value of the property, further increasing the equity.

Finally, homeowners build equity into their home with each and every mortgage payment they make. This occurs at an almost infinitesimal rate with most mortgage loans during the first payments because more money is going towards interest than principle. Gradually, however; the balance on the loan begins to decrease and provided nothing occurs to devalue the property, the homeowner begins to build up equity into the property.

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