Did you know that nearly 70% of American homeowners have at least 50% equity in their homes? Home equity—the difference between your home’s current market value and the remaining balance on your mortgage—represents a powerful financial asset that can significantly influence your housing decisions. For many homeowners, this equity can serve as a stepping stone to upgrade to a larger space or to downsize into a more manageable and comfortable living environment.
However, despite this impressive statistic, many feel trapped by current market conditions, grappling with the complexities of selling, rising prices, and increasing interest rates. If you’ve owned your home for a while, now might be a great time to leverage your home equity and think about your next steps.
Trading Up: More Space for Your Growing Family
Imagine you’re in a cozy two-bedroom home in Fort Mitchell, Kentucky. It’s served you well as a starter home, but as your family has grown, it feels cramped. You might have purchased this home a decade ago for $300,000 and refinanced at a 3% rate, giving you a monthly payment of around $1,000. Now, the market has changed, and your home is worth about $500,000 due to a steady appreciation rate of 5% per year.
What if you want to build your dream home? Let’s say you find a beautiful four-bedroom home priced at $600,000. You can leverage your home equity to make a larger down payment, resulting in a new monthly mortgage payment of approximately $1,264—only $264 more than what you currently pay. The trade-off? You gain significantly more living space, moving from 1,500 square feet to a spacious 2,800-square-foot home with a basement and a backyard.
Downsizing: Right-Sizing for Comfort and Convenience
Let’s consider those who may be thinking about downsizing. Perhaps you’ve lived in your four-bedroom home in Edgewood, Kentucky, for 15 years. Originally purchased for $400,000, it’s now valued at around $800,000. After paying down your mortgage, you’ve built up $600,000 in equity. If you decide to downsize to a modern ranch home priced at $450,000, you could see significant savings. By leveraging your home equity for a 20% down payment, your new monthly mortgage could be approximately $948—considerably lower than the $1,400 payment from your previous home. Alternatively, you could leverage your home equity to purchase the new home outright, leaving you with extra funds for travel, retirement, or other pursuits.
The Concept of “Right-Sizing”
The term “downsize” often carries a negative connotation, but consider the term “right-sizing.” This concept emphasizes finding a home that better fits your current lifestyle while maintaining quality. It’s not about losing space; it’s about leveraging the equity you’ve built to transition into a home that suits your needs.
What does it mean for YOU?
Whether you’re trading up or right-sizing, understanding how to utilize your home equity can make all the difference in today’s real estate landscape. While home prices and interest rates may be higher than they were in the past, recent trends show rates may be stabilizing or decreasing, presenting new opportunities for homeowners.
If you’re curious about how to navigate your next steps, reach out to Team Sztanyo. We’re here to help you explore the options that best fit your situation—whether that means upsizing, downsizing, or something in between. If you’re ready to buy or sell, contact us directly at info@teamsztanyo.com. Your next home awaits!