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Equity and the Interest You Pay on a Home

The goal of a home is to increase its equity. This is the value of a home. When you own a home free and clear, the equity would be the sale value of the home minus the real estate taxes you would have to pay on it. When you still owe money on a home mortgage, the equity of the home would be the value of the home minus how much you own on a home.

For example, if you have to pay $150,000 on the loan plus $48,000 in interest, and the current sale value of the home is $155,000, then you would have minus $43,000 equity. If at the end of the 30 year mortgage rate, the home is worth $300,000, then you would have gained $102,000 in equity since the current sale value of the home covers what you paid for it an all the interest.

Now, no matter what figures you run through a free mortgage interest calculator, you can never reduce the amount of what you actually paid for the home. However, you can always reduce the interest you can pay through refinancing. Returning to the aforementioned example of the $150,000/$48,000 home, if you were to reduce your interest rate so you save $11,000 from the interest cutting it down to $37,000. That means you boost the equity of your home to $113,000 at the end of the 30 year term. You might even be able to increase the equity by paying the loan off sooner than the end of the 30 year term. With a lower interest rate, this becomes more possible.

Posted by Leah Burton on June 8th, 2013 :: Filed under Home Mortgage Refinance
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