Future home equity
How do we know the equity you’ll have in your home in 5 or 10 years?
Because we create a map of your mortgage, we can project out five or ten years and tell you, if your home was worth the exact same amount as it is today, how much money you will have in your home in the future.
What if your home goes up or down in value in 5 or 10 years?
Because real estate markets are very unpredictable, we can’t see into the future to know what your home is worth. But, if you expect your home to go up (or down!) a certain amount in value in five or ten years, simply add or subtract that number from the figures in your report.
For example, if you think your home will go up $100,000 in value in ten years, then add $100,000 to the equity in your report.
Why do you have more equity in your home in five or ten years even if your home value stays the same?
Every time you make a mortgage payment, a portion of your payment goes towards paying down your mortgage balance (principal payment) and a portion goes toward the interest you agreed to pay (interest payment). As you get further into your mortgage, you build equity even faster, because a larger proportion of your mortgage payment is going to paying down your principal, rather than going just to interest, due to the way that mortgage loans amortize.
Your equity increases faster the further you are into your mortgage
Due to amortization, the proportion of your mortgage payment that goes to principal (paying down your loan balance) vs. interest is lower in the beginning of your mortgage than towards the end. Therefore, earlier in your mortgage, your home equity increases at a slower pace than later in your mortgage (if you want to learn more about this phenomenon, watch this short video).
You’ll build equity slower between years 1-5 than in years 6-10, for example. And in years 25-30 of a 30 year mortgage, most all of your mortgage payment is going towards paying down your loan balance, which increases your equity.
Why should you care about future home equity?
The amount of equity you have in your home in the future matters most when you sell your home. Equity, minus fees from selling the property, is what you get in the form of a check when you sell. It’s very important!
What are some ways to increase your home equity, besides paying your mortgage?
If value of your home goes up
Anything that increases the value of your home will increase your home equity. Remember, home equity is home value minus what you owe on it. If your home value goes up, the entire increase adds to your home equity.
Home improvements can add value to your home. However, be aware that the majority of home improvements do not return 100% of your investment. Read our guide to home improvements and return on investment.
If you pay down your principal in lump sum
You can decide to make independent principal payments to your mortgage company that reduce the amount of money you owe, in addition to making your regular mortgage payments. If you do this, please be aware of some risks that are related to banks keeping track of your payments.
If you pay off other loans you have, like HELOC or home equity loans
Because your home equity is what the value of your home is minus what you owe on it, other loans besides a mortgage, like a HELOC or home equity loan, or even PACE loans reduce the amount of equity in your home.
If you have one of these types of loans, subtract the amount you owe from the home equity you see in our report.
Paying off these loans increases your home equity by the same amount.