The Importance Of Home Equity in Building Wealth

      See how equity grows your net worth—and how to speed it up.

Rent checks disappear. Mortgage payments build something you keep. In a low-inventory market, that difference matters more than ever.

A clear, local guide to how equity works, why owning often builds net worth faster than renting, and smart ways to use your equity in the Texas Hill Country.

Homeownership vs. Renting: Building Wealth Through Equity

By · Updated · Category: Home Buying Guides

Key takeaways:
  • Equity = market value minus what you owe; it grows with principal paydown and appreciation.
  • Owners often build wealth faster than renters because payments accrue to an asset you own.
  • Rent includes taxes, insurance, and upkeep indirectly—owners see those costs transparently.
  • Use equity carefully: selling or cash-out refinancing can unlock funds, but terms and risks matter.

Table of contents

  1. What Is Home Equity (and Why It Compounds)?
  2. Owning vs. Renting: Costs, Tradeoffs, and Myths
  3. Smart Ways to Use Equity + Hardship Options
  4. FAQs

What Is Home Equity (and Why It Compounds)?

Quick answer: Home equity is your home’s market value minus your mortgage balance. It typically grows two ways—every payment that reduces principal and any market appreciation over time.

Example: if your home is worth $350,000 and you owe $200,000, your equity is $150,000. As you make payments, more goes to principal each year; if values rise, your equity can climb faster.

During some years, Texas homeowners have seen meaningful equity gains; one cited estimate put average 2020 gains near $8,000 for the state [NEED DATA]. Equity is not just a number—owners often leverage it for moves, renovations, or financial resilience.

Subtopic A

Amortization accelerates. In most fixed loans, the share of each payment going to principal increases over time, speeding equity growth—especially if you make occasional extra principal payments.

Pro tip: Ask your lender for an amortization schedule and model one extra principal payment per quarter—you’ll see how much interest you skip and how quickly equity builds.

Owning vs. Renting: Costs, Tradeoffs, and Myths

Bottom line: Renting can feel simpler up front, but you still cover property taxes, maintenance, and insurance through rent. Ownership makes those costs explicit—while turning payments into equity.

  • Transparency: Owners see taxes, insurance, HOA, and upkeep line-itemed; renters pay them indirectly via rent.
  • Wealth effect: Mortgage payments reduce what you owe on an appreciating asset; rent does not build ownership.
  • Liquidity tradeoff: Equity isn’t cash; accessing it requires selling or financing.

In supply-constrained Hill Country markets like Fredericksburg and Kerrville, appreciation potential plus diligent maintenance can make owning compelling over multi-year horizons—provided the payment fits your budget.

Smart Ways to Use Equity + Hardship Options

In practice: Owners typically tap equity by selling or refinancing. Use proceeds strategically—fund a right-size move, consolidate higher-rate debt, or invest in value-add renovations.

Sell your home. Upon sale, you receive your equity (less closing costs). Using our $350k/$200k example, that’s roughly $150k before fees and taxes.

Refinance or HELOC. A cash-out refi or home equity line lets you borrow against equity. Compare rates, fees, and payoff timelines; avoid using equity for short-lived purchases.

If you’re stretched: Consider downsizing or renting for a season, request a loan review with your servicer, and explore HUD-approved counseling for options.

Pro tip: Before tapping equity, set a written purpose, total budget, and payoff plan. If the new monthly obligation raises your debt-to-income beyond comfort, pause and reassess.

Related Guides

Sources

FAQs

Is owning always better than renting?

No. If you need maximum flexibility (short stay, uncertain job, or saving for a down payment), renting can be smarter. Over multi-year periods, ownership often wins on net worth because payments build equity.

How much equity do I need to refinance?

Many lenders look for at least 20% equity for the best pricing, but programs vary. Compare a cash-out refi with a HELOC to see which aligns with your budget and risk tolerance.

What if I’m struggling with payments?

Call your servicer promptly, review workout options, and contact a HUD-approved counselor. You can also evaluate downsizing or a temporary rental to unlock equity and lower costs.

Will Hill Country home prices keep rising?

Many forecasters expect long-run growth, but year-to-year moves can vary. Track FHFA or local MLS trends and decide based on your time horizon and payment comfort. [NEED DATA]

Have a Hill Country question?

I’m based in Fredericksburg and work across Gillespie, Kerr, Blanco, Kimble, Mason, Llano & Bandera. Let’s talk strategy.

Talk with Ryan
Transcript
so is home ownership really and truly a better path in renting let's go ahead and find out right now home ownership has always been the very first rung on the ladder leading to household wealth freddie mac recently posted home ownership has cemented its role as part of the american dream providing families with a place that is their own and an avenue for building wealth over time this wealth is built in large part through creation of equity building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability so home equity is the difference between your current market value for your home and what you owe on the property so a quick example if you're if your home is worth 350 000 but you owe 200 000 basically you just subtract that 200 000 from the 350 which gives you 150 000 worth of equity so the million dollar question everybody wants to answer to is home ownership a better route to wealth than to rent so some people like to argue that by renting you're saving money on property taxes repairs but what all renters really need to know is that the monthly expenses that these homeowners incur property taxes repairs insurance is already baked into that renter's monthly payment so you really don't save money by being a renter also the latest home equity insights report from corelogic stated that the average homeowner in the state of texas gained eight thousand dollars worth of home equity in 2020. so i'm asked this question all the time and it's when can i cash in on my housing wealth so your home equity is part of your total wealth as a homeowner and there's two ways of cashing in that equity number one obviously is going to be selling your home number two is gonna be refinancing so if you decide to sell your home the equity that you have built in over time will come back to you at the sale so again using that 350 000 market value for your home but you owe 200 000 you'll get roughly 000 back to you at closing and then you can refinance your current mortgage with the historically low interest rates right now the equity you have built in over time refinance it pull out the equity and basically still have the same payment roughly plus or minus but then you got to be smart with that money the equity you do pull out during the 0608 time frame a lot of people were pulling out that equity and then buying luxury cars going on extravagant vacations you just have to be careful and be smart with that equity if you do decide to refinance and because of this pandemic many homeowners are struggling right now with paying for their monthly housing expenses but they do have a couple different options with the equity they have built into their home so number one you can sell the home and maybe move down to something less expensive or smaller or potentially rent just for a short time period or number two you can refinance that current mortgage for a lower interest rate pull out that equity and use that equity to help pay for the monthly expenses i've also been asked a lot what will the future bring for real estate here in the texas hill country well a survey was recently done with a group of economists you know real estate experts real estate investors and they all predict for the most part all of them predict that we will see appreciation within the next five years so what's bottom line you know home equity for most americans is the quickest way to build household wealth and that wealth gives people the option during good times and during those difficult times so if you have any questions or you need help with your own home give me a call at 210-701-4878 we'll see you next time