For a majority of middle-class Americans, including servicemembers and veterans, owning a primary residence is a major investment that will typically provide a majority of their net worth through the decades. There’s a good reason for this, as a well-situated and maintained property builds generational wealth through increasing equity. Simply put, the equity of your home is its market value, minus the amount remaining on your loan.

A straightforward example is this: Owning a home valued at $350,000 and having $150,000 remaining on your mortgage payment means you have $200,000 in home equity. Building an upgrade to your property that costs you $10,000 but adds $40,000 in value is a net equity gain of $30,000.

Savvy homeowners who are willing and able to sell their home when the market is right can leverage their property into a huge financial and lifestyle gain. In an environment where houses don’t stay listed for long, and buyers are competing for limited inventory, it’s not unrealistic to expect a massive return on your initial investment.

Tips for homeowners

Selling a house that you purchased at $100,000 ten years ago for over half a million today is an enormous windfall for any family, however, the capital gains tax bill on that money can be a daunting thought. Although only using those profits to invest in another primary residence will allow you to avoid capital gains taxes on that money and greatly improve your living situation.

While the concept of equity is easy to understand, many homeowners don’t realize that it’s also an outstanding financial asset outside of selling it and purchasing a new home, like obtaining a home equity loan1 from Navy Federal Credit Union, which is exactly what it sounds like, getting a lump sum for up to 100% of the equity in your home valuation2.

Unlike a home loan, there are also no closing costs1. NFCU doesn’t charge application or origination fees, and the rate will remain fixed for the life of the loan.

You also have flexibility on the lifespan of your loan, choosing from 5, 10, 15, or 20 years with fixed rates as low as 7.34% APR1. That’s money you could use for property improvements (to gain even more equity!) or to make an investment purchase, further expanding your portfolio.

Many homeowners use them to consolidate and pay off higher-interest debt, college tuition, or even fund a destination wedding.

One thing that homeowners should keep in mind is if they ever plan to sell a property, they should do their research on which improvements will and will not increase the home’s equity. For instance, an average sized pool installation will run anywhere from $60,000-100,000, but many real-estate experts estimate that a concrete pool will only add 5-8% to the value of your home. That’s not to say you shouldn’t get a pool if that’s what you want but be aware that recreational improvements don’t always equal equity ones.

What’s awesome about accruing equity is that you are not limited in how you use it. If a large lump sum loan isn’t the best option for your needs, then maybe a home equity line of credit (HELOC)3 is a better fit. If you expect to have variable, ongoing expenses then the credit line will give you a reliable source of funds, which only needs to be used when needed. With rates down to 8.75%3, you can obtain up to 95% of your home’s equity4. The more you have, the more you can draw against, from $10,000-$500,000. Just like their fixed rate option, NFCU won’t charge you application or origination fees for a line of credit, there’s no annual fees or a penalty for inactivity3, so you can have peace of mind knowing the money is there when you need it, you have twenty years to draw on the funds, there’s no requirement to spend it if you don’t, and best of all, no closing costs3!

If you’ve been making regular payments and increasing the equity in your home, or the market has taken a bump and you’ve seen a significant leap in the value of the property, then now might be the perfect time to contact your friendly local NFCU representative and see what the best option is for leveraging your hard work into a financial tool that could pay serious dividends in the future.

What are you waiting for?

This article was sponsored by Navy Federal Credit Union.

1Home Equity Loans are fixed-rate loans. Rates are as low as 7.340% APR and are based on an evaluation of credit history, CLTV (combined loan-to-value) ratio, loan amount, and occupancy, so your rate may differ. A sample Fixed-Rate Equity Loan monthly payment based on $100,000 at 7.650% APR for 20 years is $814.79. Taxes and insurance not included; therefore, the actual payment obligation will be greater. Navy Federal will pay for all closing costs on new Fixed-Rate Equity Loan applications dated on or after June 1, 2023. Covered closing costs include lender fees and fees paid to third parties, such as settlement fees, credit reports, flood determinations, property valuations (including appraisals, if required), title searches, lender’s title insurance, recording, mortgage transfer taxes, and government charges. For loan amounts of up to $250,000, closing costs that members may pay typically range between $300 and $2,000. The member is responsible for escrow payments and/or prepaid costs, if required, including property taxes and assessments, homeowners’ and flood insurance premiums, association fees/dues and assessments, and prepaid interest. You must carry homeowners’ insurance on the property that secures this plan. All loans subject to approval. Offer is subject to change or cancellation without notice.

2Some restrictions may apply. Factors that may impact the amount of equity that can be borrowed include evaluation of credit history, CLTV ratio, occupancy, loan amount, and loan term (5, 10, 15, 20 years).

3Home Equity Lines of Credit (HELOC) are variable-rate lines. Rates are as low as 8.750% APR and 9.750% for Interest-Only Home Equity Lines of Credit and are based on an evaluation of credit history, CLTV (combined loan-to-value) ratio, line amount, and occupancy, so your rate may differ. HELOC has a minimum APR of 3.99% and a maximum APR of 18%. Members who choose to proceed with an Interest-Only HELOC may experience significant monthly payment increases when the line of credit enters the repayment phase. Navy Federal will pay for all closing costs on HELOC applications dated on or after June 3, 2024. Covered closing costs paid to 3rd parties include settlement fees, credit reports, flood determinations, property valuations (including appraisals, if required), title searches, lender’s title insurance, recording, and government charges. The member is responsible for prepaid interest and escrow payments for 1st lien HELOCs. Member must carry homeowners’ insurance on the property that secures the HELOC. For loan amounts up to $250,000, closing costs typically range between $300 and $2,000. Applications for a HELOC include a request for a HELOC Platinum Credit Card. All loans subject to approval. Offer is subject to change or cancellation without notice. Rates are subject to change. HELOC loans are not available in Texas.

4Some restrictions may apply. The maximum CLTV for primary and second properties is 95% and for investment properties is 70%. Factors that may impact the amount of equity that can be borrowed include evaluation of credit history, CLTV ratio, occupancy, and loan amount.

The post Understanding your home equity appeared first on Task & Purpose.