Question

Building equity in a home is a good thing because

mortgage payments decrease as equity increases.
credit scores increase as equity increases.
equity in a home increases the homeowner’s net worth.
property taxes decrease as equity increases.

Answer 1

Correct answer: equity in a home increases the homeowner’s net worth.

Why the others are incorrect:
- Mortgage payments decrease as equity increases — No. Your scheduled mortgage payment doesn’t automatically get smaller because you have more equity; equity rises as you pay principal and/or the home appreciates, but the monthly payment is typically fixed unless you refinance or have an adjustable-rate loan.
- Credit scores increase as equity increases — Not directly. Credit scores depend on factors like payment history, credit utilization, and account age. Higher equity can improve your loan-to-value ratio and borrowing options, but it doesn’t automatically raise your credit score.
- Property taxes decrease as equity increases — No. Property taxes are based on assessed value (and local tax rates), not on how much equity you have; in fact, if the home’s value rises, taxes may go up.