Benefits of Owning a Home versus Renting 1 of 6: Build Equity

Benefits of Owning a Home Versus Renting: 1 of 6, Build Equity

As a real estate agent with 24+ years in the South Metro Twin Cities, I’ve watched building equity change what’s possible for buyers, sellers, and everyone in between. If you’re not familiar with the term, equity is simply the portion of your home you actually own, your home’s market value minus what you still owe on the mortgage. If your home is worth $400,000 and you owe $150,000, you’ve got $250,000 in equity, much like money sitting in a savings account, except this one grows while you live in it.

One of the biggest advantages I see with clients who’ve built up solid equity is the options it gives them at resale. When it’s time to sell and buy the next home, that equity becomes their down payment, and a bigger down payment means more house, better terms, or simply more breathing room in the next purchase. I’ve watched clients go from a starter home into exactly the home they wanted, purely because the equity they built gave them the flexibility to make it happen.

Here’s something most people don’t realize:

• Making just one extra mortgage payment a year can knock a standard 30-year loan down to roughly 23 years
• Early in a mortgage, most of your payment goes toward interest, not principal
• It’s not until around year 25 that a typical payment splits roughly 50/50 between interest and principal
• That one extra payment a year goes straight at principal, compounding into years shaved off your loan and real equity built faster

Refinancing can also accelerate equity, but only under the right conditions:

• Only consider refinancing if you can drop your rate by at least a full percentage point
• You should plan to stay in the home at least another five years, since refinancing costs money upfront and you need time to come out ahead
• Never use your home equity as a piggy bank for something like a new car or discretionary spending
• The only way a mortgage gets paid off is by paying on it, and maybe paying a little extra, not pulling money back out

Since 1968, U.S. home values have appreciated an average of 2% to 4% annually, with the notable exception of the 2008-2009 housing downturn, and some years have seen double-digit appreciation. Combine that steady long-term growth with smart principal paydown, and building equity becomes one of the strongest financial arguments for owning over renting.

Building equity is just one of six compelling reasons why owning a home beats renting. If you’re ready to start building your own equity and want to talk through what that could look like for your situation, I’d love to help.

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Serving Lakeville, Apple Valley, Eagan, Farmington, and Rosemount, and the greater South Metro Twin Cities area.