WHEN DOES EQUITY BEGIN?

WHEN DOES EQUITY BEGIN?

March 13, 2017

Equity is the term used to represent the amount of money real estate is worth compared to the amount of any outstanding loans due against the property.

In an ideal circumstance, when you purchase a property you could experience instant equity if the price you pay is less than the appraised value of the home.

Although buying a house, for the first time or the third, carries certain costs, conventional wisdom declares a minimum of five years is standard before any really substantial equity is realized.

However, the exact amount of time it takes to break even and begin building those gains will vary due to variations in each marketplace.  New Jersey homeowners have seen a rise in home prices of 5.5% year over year on average, though of course, home values are certainly not rising at the same exact rate in every town across the state.

According to Zillow’s Q4 2016 Breakeven Horizon report, typical break-even points will be anywhere from just under a year and a half to over five years. To take equity gain into consideration in your home buying decision, you will want to look at several factors:

  • Look at the original values and sale prices for the last 5 years
  • Consider any improvements or developments planned for the near future
  • Your principal, rate of interest and repayment schedule

Many people choose to make additional payments on their mortgage in order to accelerate their equity earnings. Those additional payments can directly cause increased equity returns because they not only lower the principal amount due, but also lower the amount you pay in interest over the life of the loan.

As loans against a property decrease and home values increase, financial benefits are multiplied to the homeowner.

Depending on your life plans, and of course, taking into consideration other factors that influence the real estate market, you could find yourself enjoying home equity gains in less than two years, which is the national average at this time.

Of course, this is good news to those who have been contemplating the sale of a property, as they may discover a financial windfall they hadn’t been aware of previously.  Interested in how the value of your home may have changed with this changing market?  CLICK HERE and find out!

Give me a call or send an email if you'd like more detailed information on either selling or buying!

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