Home equity helps Americans grow wealth

Posted by on March 22nd, 2017

In 2016, 1 million American homeowners rode cresting home prices into positive equity territory.

Just 6.2 percent, or 3.17 million U.S. homes, remain in negative equity, down from an all-time high of 26 percent in 2009, per a new report from real estate data analysis firm CoreLogic.

Negative equity, or being “underwater,” is when a homeowner owes more on a mortgage than the mortgaged property is worth.

If home prices rise another 5 percent, another 600,000 homes would re-emerge into positive territory.

Equity is the difference between how much your home is worth and how much you owe on your mortgage. Through mortgage payments, and home appreciation, equity grows.

Building equity is a critical part of creating lifelong financial stability.

Since the home pricing trough of 2011, Americans have more than doubled home equity, to more than $12 trillion. An Urban Institute study says some $11.3 trillion of that equity is “untapped.”

Short of selling and buying a less expensive home, homeowners can leverage home equity for a refinance to take advantage of more favorable loan terms.

Borrowers can also use equity as collateral for a home equity loan or home equity line of credit.

Home equity is of growing importance to those entering retirement. The Baby Boom generation is the first of the new normal without pensions. Traditional savings plans can be vulnerable or underfunded.

Many older homeowners use the equity in their homes to obtain a Home Equity Conversion Mortgage, also called a reverse mortgage.

Home value doesn’t always go up. Financial recession and other factors can cause an equity decrease.

However, over the long term, real estate tends to increase in value. CoreLogic projects a 4.8 percent increase in home prices from January 2017 to January 2018.