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Regaining Lost Home Equity

Six trillion dollars. Most of us have difficulty wrapping our brains around such a figure. That's roughly how much U.S. homeowners lost in home value—$5.9 trillion, to be exact—from March 2006, when the housing market peaked, through November 2009, according to Zillow.com.

Can you regain your lost home equity and, if so, how long will it take? The answer is: that depends.

If you intend to stay in your home for awhile, chances are you'll regain some of the equity. Although, some real estate experts suggest that even if housing recovers, home ownership likely will never again provide rewards such as those in the second half of the 20th century, when housing yielded a sizable nest egg for home owners (The New York Times Aug. 22).

If you plan to move soon and need to sell, you'd need to act sooner to boost your home's value, and thus your equity. So what should you do?

Home Improvements - Yes!

If you need to sell, doing minor fix-ups can enhance your home's appeal and value, and hence your equity, without costing a lot of money.

Major Renovations - Probably not

Doing major remodeling just to boost your house's value usually doesn't pay. Renovation projects don't earn a dollar-for-dollar return in increased home value.

Refinance - Maybe

Rates for home loans are still at historic lows. Generally, if you can lower your rate on your loan by at least 1% you should consider refinancing. Refinancing can help you lower your payment which can free up money to pay down debt or invest in savings. Or, you may be able to shorten the term of the loan so you can pay off your house sooner.

Pay Extra on Your Mortgage - That depends

Financial planners urge home owners to look at the big picture. Putting extra money on your mortgage may make sense if you owe more than the home is worth. However, it won't build wealth over time. You could put that extra money toward paying off high-interest debt or contributing to your retirement savings plan.

If you're not sure which is the best choice for you consider speaking with one of our certified financial counselors at BALANCE. This service is provided to our members at no cost to give you access to free, objective advice and guidance on reaching your financial goals.