REAL ESTATE TALK with Julie Brandle: Equity and why it’s important

I do not pretend to be a lender but I do know that Real Estate is one of the most talked about subjects of all time! I’ll be at the grocery store or get messages on Facebook often and the standard question is “Are houses selling in this economy?” My answer? Totally depends on the seller’s situation! If you bought before 2006 when prices skyrocketed, you will have ample equity. If you bought right after the fire when prices skyrocketed again, you may not have much equity today. It will also depend on why you are selling. If you are wanting to upgrade, you may need that equity to use towards the new home. If you are downsizing to a smaller home & smaller mortgage, you may be ok. Are homes selling right now? You bet they are! If they are priced right that is! So, what is this Equity word I keep throwing around? Equity is what you own, minus what you owe. It’s the percentage of your home value that belongs to you free and clear. Example – If your home is worth (Call your Realtor) $350,000 but your outstanding mortgage balance is only $300,000 – you have built $50,000 of equity in that home. That equity can grow in 3 different ways. 1. Market appreciation – If you bought your home for $100,000 and it’s actually worth $300,000 in today’s market, you have built $200,000 of equity. 2. Forced appreciation is another common way to build equity. While market appreciation is based on factors outside of your control, forced appreciation is the direct result of your actions. Example, if you redo your kitchen and only spend $8,000 but it actually adds $15,000 to your market value, you have just increased your equity. 3. Debt reduction is yet another way to boost equity. This is done by reducing the principal balance of your mortgage. If you want to accelerate equity growth at the start of your term, you can make extra principal payments. This will boost your equity while also lowering the total interest you’ll pay over the life of the loan and perhaps give you equity to borrow on. So, long story short, talk to your Realtor and your lender about your individual situation and find out if you have useable equity or not. This will give you the “big picture” and allow you to be a smarter seller. For market evaluations please call Royal LePage Progressive Realty at 780- 805-3111 or use our kiosk at the MRC!

 

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