How to Use Your Home Equity

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How to Use Your Home Equity

For move-up buyers, the typical pattern for building financial stability and wealth through homeownership works this way: you buy a house and gain equity over several years of mortgage payments and price appreciation. You then take that equity from the sale of your house to make a down payment on your next home, and then repeat the process.

For homeowners ready to downsize, home equity can work in a slightly different way. What you choose to do depends in part on your goals.

According to HousingWire.com, for some, the desire to downsize may be related to retirement plans or children aging out of the home. Others may choose to live in a smaller home to save money or simplify their lifestyle in a space that’s easier to clean and declutter. The reasons can vary greatly, and even by generation.

Those who choose to put their equity toward a new home may be able to make a substantial down payment or even buy their next home in cash. This is incredibly valuable if your goal is to have a minimal mortgage payment or none at all.

Saving, male hand putting a coin into piggy bank.

The Impact of Low Mortgage Rates

Mortgage rates are also expected to remain low throughout 2020 at an average of 3.8% for a 30-year fixed-rate loan, making moving into a new home right now very desirable. Low mortgage rates can offset price hikes and increasing appreciation, so locking in while rates are low will be key.

When rates are low and you also have equity to put into your next home, you may be in a better position than you think when it comes to making a move into your dream home. The combination of leveraging your growing equity and capitalizing on low rates could make a big difference in your housing plans this year.

Bottom Line

If you’re planning on making a move this year, the twin trends of low mortgage rates and rising home equity can kickstart or boost those plans in the right direction.

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