Build equity in your home quickly and easily with the help of these four must-know tips:
What is Home Equity?
In short, home equity is the difference between what your home is worth and how much you owe on your mortgage. To calculate how much equity you currently have, take the value of your home and subtract the amount remaining on your loan.
For example, if your home is valued at $400,000 and you have $200,000 left on your mortgage, you will have $200,000 in equity.
Building Equity Faster
Your home equity can be expedited in one of two ways:
1. Increasing your property value
2. Decreasing your mortgage loan
Here’s how to do it:
1. Put More Down
The larger your down payment, the smaller your mortgage loan balance - and the smaller your mortgage loan balance, the more (instant) equity you’ll have. Even better, you’ll benefit from reduced interest rates and, if you put down 20% or more, you won’t have the added expense of mortgage loan insurance – both of which will amount to significant savings (and the ability to pay your loan off faster).
2. Refinance Your Mortgage
Refinancing your mortgage to a shorter-term (say, switching from a 25-year term to 15 years) will decrease the amount of interest over the lifetime of your loan and allow you to pay off your mortgage principal (and build equity) faster.
3. Boosting Your Home’s Value
Another sure-fire way to build equity is by increasing the fair market value of your home. By investing a little additional time and money into necessary repairs, renovations and maintenance, you’ll be able to boost your property’s value (not to mention sale price) and your home equity at the same time.
See our previous post: 8 Affordable Ways to Improve Your Home’s Value
4. Pay More, More Often
The fastest way to decrease your mortgage loan? Pay more and/or pay more often. By upping your mortgage payment frequency, you’ll be able to save money, build equity and become mortgage-free faster. Popular options include:
Accelerated Bi-Weekly Payments – Your monthly payment is divided into two and paid every two weeks, allowing you to make one additional mortgage payment a year.
Accelerated Weekly Payments - Your monthly payment is divided into four and paid every week, allowing you to make one additional mortgage payment a year.
Prepayment Privileges – These privileges allow you to put more towards your mortgage (in addition to your regular payments), penalty-free. Depending on your lender, these may include a) increasing your standard payment amount annually or once a term or b) making a large, lump-sum payment at some point during the year.
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