For many, home ownership goes up in steps. If sales and purchases are done strategically, the profit from one home sale will help to pay for the next home. Historically low interest rates, and increased sales and home values make this an excellent time for many Tampa area home owners to strategically size up.
Increase in Property Values
The value of your home subtracted from what’s owed on your mortgage is called equity. In a healthy real estate market, homes increase in value over time, thus contributing to increased equity in the home. After a painful slump, Tampa area home values have increased thanks to a robust real estate recovery. The monthly average home sale prices increased 39.635% in Hillsborough County from 2009 through 2015. If, for example, you purchased a home in 2009 for $175,000, and it increased of 39.635%, that would translate to a current home value of $245,542 (that's $69k more equity).
How Much of Your Principal Balance Has Been Paid Down
Mortgage payments are used to pay principal (the original amount borrowed) and interest (the interest calculated over the term of the loan) according to what’s called an amortization schedule. The earlier payments on a mortgage pay more toward interest than the principal balance, but payments over 5-6 years will still help to bring down the principal balance, thus earning you more equity in your home. If you’d purchased the home from the example above for $175,000, put about 15% down and paid 6% interest, then over the five years between 2009 and 2015, you would have paid down approximately $14,866 of your principal balance, adding to the equity in your home.
Historically Low Mortgage Interest Rates
The interest rate of your mortgage is a key factor in the cost of your loan and, in turn, your monthly payments. In 2009, mortgage interest rates of 6% were not uncommon. Using the example above, a 6% interest rate would have put your monthly principal and interest payments at about $891.83 (approx. $1141 after taxes and insurance).
If you use your current home's equity to give at least a 20% down payment on a new home for $300,000 at today's interest rates of 3.625 on a 30 year fixed mortgage, it would cost you $1094.52 in monthly principal and interest payments (approx. $1405/month including taxes and insurance). For only $265 more/month, you just sized up your home! Today’s historically low interest rates help you get more house for lower payments.
Getting Details About Your Specific Circumstances
This example is intended only to give you a general idea of how your current home can help you size up to your next home. Each situation is unique, so it’s important to work with a well-informed and honest Realtor® who will give you an accurate home valuation and educate you on your options. Please be aware that online home valuations are typically inaccurate, especially in the Tampa area where a local, knowledgeable Realtor® is better equipped to estimate a home’s value based on local market conditions and carefully selected comparable homes. I would be honored to be that Realtor®. I am always on your side, so you can count on me to advise you with your best interests at heart. Contact me today for a thorough and honest evaluation of your unique circumstances and Get a FREE personal MLS portal to search the most up-to-date Tampa area listings, access helpful tools and organize your home search.
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