
While growing up, we were taught by our parents and grandparents that
owning a home is a financially savvy move. They explained how a mortgage
is like a “forced savings plan.” When you pay rent, that money is lost
forever. When you make a mortgage payment, much of that money
accumulates as equity in the home. So, what exactly is equity?
The equity in your home is the amount of money you can sell it for minus
what you still owe on the mortgage. Every month you make a mortgage
payment, and every month a portion of what you pay reduces the amount
you owe. That reduction of your mortgage every month increases your
equity.
A recent study by CoreLogic
explained that homeowners gained substantial equity over the last
twelve months, and are essentially sitting on large sums of cash in
their homes. In the study, Frank Nothaft, Chief Economist for CoreLogic explained:
“The CoreLogic Home Price Index recorded a quickening of home price gains during the fourth quarter of 2019, helping to boost home equity wealth. The average family with a mortgage had a $7,300 gain in home equity during the past year, and a total of $177,000 in home equity wealth.”For most families, their home is their largest financial asset. This increase in equity drives the net worth, or family wealth, of the homeowner. Renters are not earning that benefit. Instead, they’re building the net worth of their landlord.