Maintaining a good amount of equity in your home is essential to ensure you have various refinancing options available when the need arises. Experts recommend that you should maintain at least 20% equity in your home. Having a minimum of this percentage in equity provides you with a sound foundation to explore different refinancing options to suit your needs. Below are some of the reasons why this percentage is considered the ideal amount of equity to have in your home:
Cash-out refinances require a minimum of 20% equity: If you’re looking to access cash from your home equity via cash-out refinances, you’ll need to have 20% equity in your home. Without meeting this requirement, you may not be able to qualify for cash-out refinances.
Lower interest rates: When you have a good amount of equity, you’ll qualify for lower interest rates on refinanced mortgages. Having this percentage of equity saves you the costs of additional expenses, such as mortgage insurance or high-interest rates.
Greater financial freedom: With 20% equity in your home, you’ll have the freedom to choose from different refinancing options. This allows you to pick a loan type that suits your needs, whether you’re looking to shorten your loan term or lower your interest rates.
It’s always better to have more equity in your home than to fall short. While the ideal amount of equity is 20%, some experts may recommend up to 30% or even 50% for more financial stability. Ultimately, the amount of equity you maintain in your home depends on your individual needs, financial situation, and long-term goals.