Another benefit of buying a home is building
equity.
What is equity?
When you make a down payment on a home, the
amount of the payment determines your
equity,
or the percentage of the property you actually own. The more you
put down, the greater your equity.
As you pay off the
principal
on your
mortgage,
your equity in the house increases. When your
mortgage is fully paid, your equity is 100%. The house is yours
free and clear.
Using equity
Building equity in your home can be a major
advantage if you need to borrow money. Your equity can serve
as
collateral
for a home equity loan, which typically offers better
terms than other types of loans.
With a home equity loan, you’re often
able to borrow more money at a lower interest rate. And, in many
cases, you can deduct the interest you pay on this loan as well
as on your primary mortgage when you file your tax return, further
reducing the actual cost of borrowing. Most of the other interest
you pay, on car loans or personal loans, for example, isn’t
deductible.
Many people use home equity loans to finance
major expenses, such as home improvements or a child’s college
bills. But since you face the danger of losing your home through
foreclosure
if you
default
on a home equity loan, or fall behind on repayment,
experts advise against using your equity to cover day-to-day expenses.
Dwight
P. Robinson, Senior Vice President, Corporate Relations,
Freddie Mac
Dwight
P. Robinson, Senior Vice President, Corporate Relations, 