We all know that our home is probably the biggest single investment that we have in our lifetime. Many people do think that their home equity is their biggest asset. Depending on a variety of things, this could be quite true. In general, home equity is the real value of the ownership of our home. By subtracting the known home value with the outstanding balance of the mortgage, we should know about our real home equity value. In this case, we should know that our home equity is significant enough in terms of value. Depending on the situation, the proper home equity management method can be quite different.
We should have enough information on how to properly manage our home equity. As an example, we should know just how safe our home quality is. In fact, many people still confuse stability with safety. Stable platforms for storing money can be CDs or certificates of deposits, savings account and others. In this case, we will never lose money, although we gain very little from them. The biggest risks associated with these savings platforms are opportunity costs, inflation and taxes. In some cases, these expenses could erode the real value of our money. Owning a house also has its own risk. As an example home equity can be affected with volatility. This will cause the price of the home to go upward or downward.
Although economic recession can be somewhat unlikely, it could still happen and we have no control over it. In fact, there are factors that could cause unexpected reduction in the overall costs of the house. A rare heat wave in the area may result in bushfire near our neighbourhood and this could be the reason for the reduction of our house’s values. Owning a house with mortgage could also bring more problems. As an example, we could suddenly lose our job and we don’t have the financial capability to pay for the monthly mortgage. In this case, we should make sure that we have a steady job before planning to apply for mortgage.
The lender should also have a good response to our intention to own the house. The lender should think that we do have the financial capability to pay the monthly mortgage payment. We should be able to convince the lender that we are able to repay our obligations. In general, our current income is the evidence of our ability to repay. If we don’t have enough money to repay the mortgage, our house will eventually be foreclosed or repossessed. This is something that we need to avoid whenever possible. It is also important to know more about the real meaning of home equity.
Home equity is also related to how easily we can convert the value of the house into cash. If we urgently need money, we should be able to cash in. A house with proper equity will allow us to refinance it. We should know that lenders are essentially income lenders and not equity lenders.