One of the biggest advantages of owning a home is building home equity.
Home equity is the current market value of a home minus its outstanding mortgage balance. In simple terms, it’s home ownership that you build by making monthly mortgage payments.
Depending on the terms of your mortgage, you’ll usually pay it off in a set amount of time — usually 30 years, 15 years, or 10 years. This means you methodically build equity at a certain rate.
It’s possible for your home equity to grow in ways beyond making your mortgage payments. Here are five ways to build equity faster:
Rising home prices
If you live in a state, city, or neighborhood where home prices are rising, your home equity is likely to rise. For example, if your home was valued at $200,000 several years ago, but increased to $225,000 due to buyer demand, you’ve accumulated $25,000 worth of home equity.
Home prices can decline as well, which can mean losing home equity.
Making larger mortgage payments
If you make larger monthly mortgage payments, with the extra portion going toward your principal, you’ll build equity faster (and pay off your mortgage in less time).
Bi-weekly mortgage payments
A less known option, bi-weekly mortgages let you make one-half of a mortgage payment every other week instead of a full payment made once per month. This means you make 13 mortgage payments over one year instead of the usual 12.
Refinancing your mortgage into a shorter term
You can refinance your mortgage into a reduced term, such as refinancing your 30-year fixed rate mortgage into a 15-year fixed rate mortgage. This can build equity faster, lower the total interest amount you pay over the life of your loan, and save you potentially thousands of dollars.
However, it can also raise your monthly mortgage payment.
Making specific home improvements
While not 100% guaranteed to increase your home equity, making specific home improvements can have a strong return on investment. The most cost-effective home improvements include insulating your attic, remodeling your kitchen, and replacing your garage door.
You can build home equity faster through a variety of strategies
Home equity is a powerful benefit for homeowners. And fortunately, there are a range of ways to build your equity at a faster rate. When thinking about strategies for building equity faster, carefully consider current financial situation, lifestyle, and long-term goals.
While building equity faster can be an appealing prospect, keeping your current monthly mortgage payments may help you remain financially stable.
For more information on home equity, or to begin your journey into homeownership, contact one of Open Mortgage’s friendly loan originators.
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