Jan 6, 2019

Since WWII homes have increased in value at an average rate of 3.5% each year. We all know that annual home appreciation rates have been higher lately which is great for homeowners, but let’s see how home equity increases with or without appreciation when mortgage financing is used to purchase a home.

For this example: Sale Price = $300,000; Down Payment = $30,000 (10%); Initial 30yr Fixed Loan Amount = $270,000

  • With ZERO appreciation you will pay down your loan balance by $60,000 by the end of the 10th year when the minimum monthly principal and interest payments are made.
  • Even if your home does not increase in value by a single dollar, at the end of 10 years of making the minimum payments you would owe approximately $210,000 on your loan leaving $90,000 in equity in a $300,000 home!
  • If your home does happen to appreciate at the conservative historical average of 3.5% per year, that same $300,000 home will be worth about $420,000 after 10 years.
  • Subtract the $210,000 you will still owe on your loan at the end of the 10th year and you will have $210,000 in equity on a $420,000 home!