Equity is the difference between the value of a property and the amount owed. The equity you have built into your home is your greatest asset. That equity represents the actual return on investment that you have earned by buying your home. There are two ways that equity is built:
1) Equity increases as the value of your home increases. Home values fluctuate according to many factors such as the demand for property in your area, increases in value of homes around yours, increases in community surroundings that increase demand for property, and the economy. Historically as time passes home values increase. A home’s value can also increase due to improvements to the property. As the home’s value increases and the debt remains the same or lowers, the equity rises.
2) Equity increases when the debt is paid down through mortgage payments over time or overpayments. Reducing the mortgage debt will build equity so long as the value of the home remains at the level it was when the mortgage was obtained. Should the value of the home fall below the level of the debt on the property then it is referred to as “negative equity”.
There are ways in which a remortgage could help build home equity. If a homeowner remortgaged to obtain savings in the monthly mortgage payments then the savings could be used to pay down the debt which would build equity more quickly. Equity could also be built by remortgaging if the house valued at a level higher during the remortgage process than it was at the time of the original mortgage.
