Is most of your net worth in your home equity? Read tips on how to protect it.
I know, right? How rude. But seriously, did you know that homeowner home equity is the largest pool of wealth in the United States and currently stands at $12 trillion?
What is home equity, you might be wondering? Good question. It refers to the money that you have in your home. To get this amount, just take what your home is worth, and subtract what you owe on it. If you have a house worth $400,000 and you owe $300,000 on your mortgage, your home equity is $100,000. Easy.
It’s good to know what this amount is because then you are able to protect it better. For example, if you refinance, sometimes it will reduce the money you have in your home in the future, compared to now. That means that when you go to sell your home, you’ll get a smaller check back.
Because homeowners have so much money in their homes, people like mortgage brokers or investment advisors may approach you to do things like take out a home equity line of credit, get a cash out refinance, or, what’s called a “proprietary reverse mortgage”. Often these recommendations are made in an argument to “diversify” your assets. Diversification is a solid strategy in many cases, but keep in mind that other investments can be more risky than keeping the money in your home. And, these financial professionals typically get lots of fees for either refinances or investments, making their advice biased.
For more information on how to protect yourself, get our free guide “How much is my home worth and how much equity do I have” which has helpful tips on how to protect it.