Residential Equity

Written by Tara Peris
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A good many homeowners overlook the value of their residential equity. All too often, the debt associated with a mortgage overshadows the broader financial benefit of home ownership. However, residential equity is a valuable financial tool and it is a resource that should be appraised on a regular basis.

Most homeowners have a very crude understanding of home equity. They understand the basic idea that equity is determined based on current property values and their outstanding debts, but they know little beyond this. It's understandable given the fluid, dynamic nature of the real estate market and the fact that property values are in a near-constant state of flux. However, as with any investment, it makes sense to track your position frequently.

Estimating Your Home Equity

If you've been making regular payments on your home and it has appreciated over the years, you likely have some equity with which to work. The key is to figure out how much equity you've actually got. The first step in this process is often a home appraisal. This will give you a clear sense of what your home could fetch on the market, and will help you to understand your present loan prospects.

The next step is to determine whether you want to use your home equity as the down payment for a new loan. There are a number of perks to this financial strategy, including potential tax benefits. Speak with a lender about your home equity status, and consider both the pros and cons associated with each of your loan options.

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