Whats Equity And Why Is It SOOOOO Important

Whats Equity And Why Is It SOOOOO Important

What does a dollar represent to you?

For some it represents the ability to do the things they enjoy in life. Shopping, vacations, restaurants, you know.. that stuff. 

For others it represents a child's future and the ability to provide. For most it represents hours and hours of endless hard work and constantly listening to Harold in HR tell you about how your non-compliance it really hurting position with the company. (Nobody likes Harold) 

For everyone, a dollar represents something. Something that the owner holds dear. And because of that, every dollar we have is cherished. We know this is true because otherwise you would buy everything you ever wanted, and then you would have no dollars. 

So why should housing be any different? 

When you rent an apartment, you pay your rent to landlord who will NEVER return any part of the rent to you. You might get a security deposit back, but POOF! The rest of your money is gone.

Not so when you own a house! 

When you make your monthly payment as an owner, there are 4 pieces to the pie that get divided up: 

- Principal: This is the balance of the mortgage loan you took out from the bank 

- Interest: This is the amount of money you pay the bank for them letting you borrow money 

- Taxes: This gets put in a special account that your mortgage company will distribute to the tax man when the time comes 

- Insurance: This gets put into a special account and gets paid when your bill comes 

Very simply, equity is the amount of principal that you have paid into the house. So let do a quick scenario and I'll show you how it works:     

                - You own a home worth $100,000. After paying payments for 15 years, you only owe $50,000. Assuming you have kept up on the maintenance of your home, when you go to sell, you                    will have $50,000 in equity that you will get back out of the sale of the home.  

Isn't that awesome? You can also use the equity in your home for other things like renovation projects, rainy day funds, emergency needs, and whatever else life throws at you. Obviously you wouldn't want to do stupid things with money you took out of your home value, but when you're in a pinch it can definitely come in handy.  Happy hunting!

David Pagano Headshot
Phone: 585-233-8975
Dated: February 29th 2016
Views: 260
About David: ...

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