As top Texas mortgage lenders, we know that if you’re considering a mortgage refinance, you’ll hear plenty about equity throughout the refinance process. The amount of equity you have in your home can affect your options when refinancing your home loans.
- Maybe you want to tap into your home’s equity to cover a loss of income.
- Perhaps using your home’s equity can help you fund a renovation project or finance another expense.
- As you begin the refinancing paperwork, you’ll need to understand how much equity you currently have in your home.
If you have plenty of equity, your Texas mortgage broker will help you maximize your refinancing to lower your mortgage payments and access equity funds. However, even with low equity, a mortgage lender can work with you on the right options for refinancing your home that benefit you.
How can you calculate your home’s equity? The HomeSoon Lending Team is here to help!
First: What Is Equity?
- The equity you have in your home is the portion of the house that you own.
- If you’re paying down a mortgage, the payment toward the loan’s principal amount is your equity.
- The amount you still owe is the difference in your equity—and the portion of your home still owned by your lender.
Your equity changes over time. It increases as you pay down the principal of your loan. It can also increase if your home’s value rises. These are all important factors to understand about your home’s equity when looking to refinance with top Texas mortgage lenders.
How Do I Calculate Equity?
Before considering refinancing your home loan, it’s a good idea to understand how much equity you have in your home. It’s a simple calculation that prepares you to work with a Texas mortgage lender on your refinance options.
The Calculation
- Find your home’s current value.
- Subtract the amount you still owe on your existing mortgage.
- The difference in those two amounts is your equity.
If your home is worth $300,000 and you owe $125,000 more on your home loan, you have $175,000 in equity. That means you own more of your home than the amount that you still owe to your lender—and that’s a good thing when considering refinancing your home loan!
Why Does Equity Matter?
Without enough equity in your home, a refinance won’t always work out in your favor. However, this can depend on your goals.
When interest rates are low, most homeowners can benefit from refinancing their home loans—even with only a small amount of equity in a home. However, refinancing with more equity is a better situation when considering a mortgage refinance.
It’s About Risk
When a homeowner has plenty of equity, a refinanced loan amount will be a small commitment for a lender. Plus, your track record of paying your monthly mortgage consistently over time tells a lender that you’re an excellent candidate to trust with a refinanced mortgage.
However, if you’re at the start of a new mortgage without much equity built into your home yet, you’re a higher risk for top Texas mortgage lenders.
- You don’t yet have the track record of steady monthly payments, and your loan amount is still significant.
- Having low equity means you still owe more on the home than you’ve paid so far.
- You still have a long mortgage journey ahead—and lenders might be less likely to offer the best interest rates when you try to refinance too soon.
It’s Not All About Equity
Being “right-side-up” or having more equity than you owe on your home is an excellent place to be when starting your home loan refinancing process. However, if you don’t quite have any equity worth bragging about because you’re “upside-down” on your current mortgage, you’re not out of refinancing options—or ways to use the equity you do have for a home improvement project.
Cash-Out Refinance
If you need quick cash, a cash-out refinance taps into the equity you have—whether it’s a little or a lot. You’ll benefit from a lower interest rate if your initial mortgage interest rate was higher than the current rates. However, this option might not lower your monthly mortgage payments.
Home Equity Loan
- A home equity loan is a sum of money you borrow against your amount of equity.
- How much you can borrow (and repay) depends on how much equity you have.
- If you’ve heard of “taking out a second mortgage” on a home, it’s likely a home equity loan.
Home Equity Line of Credit (HELOC)
This option provides a variable-rate line of credit. You can borrow from a HELOC and pay it back more than once.
Navigate Equity With a Top Texas Mortgage Lender!
Calculating and understanding your home’s equity can get confusing without the right experts! Let the HomeSoon Lending Team help you navigate your options for refinancing your home loan! Our process simplifies the mortgage journey and helps home-buyers complete a home loan sooner rather than later!
Learn more with our free resource, the Road Map to Mortgages!