Over the past few decades, the way we view homeownership has changed. Unlike previous generations who bought a home with a 30-year mortgage and celebrated the day they made their last payment; today’s home buyers rarely stay in their homes that long. As a result, the way we view mortgages has changed as well and often buyers are not building the equity in their homes the way we used to.
But there are benefits to building equity and paying down the loan, here are just a few.
Flexibility. Having equity in your home gives you the flexibility to move if you need to or want to. For homeowners who plan to either buy a large home or perhaps downsize, having equity allows you to not only put money down on a new loan but pay for moving and closing costs.
Safety Net. Life is full of unexpected expenses such as a job loss or relocation, unexpected illness or accident, natural disasters and the equity in your home can help you navigate these unexpected costs with a line of credit or proceeds from a sale.
Asset Recovery. Many homeowners over the last couple of decades have found themselves underwater in their homes; negative equity. By either making additional principal payments on the loan or reaping the effect of higher home values, building equity can help create wealth and turn a negative asset into a positive.
Homeowners might not plan to stay in their homes as long as they're parents and grandparents, but there are still great reasons to focus on building equity in their homes. A home is an asset and if treated properly can become a wealth-building tool, unlike any other option.