I was one of about 2 million homeowners who came out from being underwater on their mortgages last year. According to a recent article by CNBC, another 1 million homeowners this year will likely join the right-side-up club by owing the same or less on their mortgages than their homes are worth.
Now that I can view my house as an asset instead of a liability, I am figuring out where to go from here. I know there are several advantages of having equity in my home. However, I can also see how I could get into trouble if I don't stick to my longtime plan to pay off my home early.
Using my home as an ATM
More people are using the equity in their homes as an ATM by taking out home equity lines of credit, according to another CNBC story. Just because I have equity in my home doesn't mean it's smart to borrow against my home. I still want to maintain a debt-free lifestyle. Also, I will only get further away from paying off my home if I take out a home equity loan.
Paying less toward my mortgage
One of the reasons I paid extra on my mortgage was so that I could go from being underwater to right-side-up on it. Even though we had to stick to a tight budget for about 3 years, our strategy for going from negative to positive equity on our home worked. If I stop paying extra, we will pay off our home in 15 years. However, I still have the goal to be free of a mortgage in my 40s.
Being able to avoid PMI
After building up 20 percent equity in our home, we were able to refinance without paying private mortgage insurance. Many homeowners have near-negative equity in their homes, which means they have to pay PMI if they refinance. I ended up having to pay an extra $2,000 so that I could avoid PMI when I refinanced from a 4.65 to a 2.75 percent rate earlier this year.
Picking up and moving
Now that we have positive equity in our home, we could move more easily if we wanted to. We wouldn't have to do a short sale or go into foreclosure. However, moving is a costly proposition. Most of the newer homes on the market are more expensive than our house. Just as the value of our home has risen, the values of other homes have risen as well. We would have to pay for closing and moving costs, which add up. Although it's nice to have the financial flexibility to be able to move, it wouldn't get us further ahead financially.
In some ways I miss being underwater on our mortgage because it motivated me to pay down my mortgage as quickly as possible. My goal was never to just have equity in my home. My goal has always been to own my home outright by paying off my mortgage.
It doesn't matter to me if the value of our home goes up as long as I eliminate our mortgage debt. In another 7 years, I don't know what my home will be worth on paper. But I know I'll actually own it.
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