When you take out a mortgage it can feel like it will take forever to build equity in your home, especially if you take out a 100% mortgage. The good news is that it doesn’t have to take forever. There are some simple ways that you can build that equity faster.
Make Extra Payments
You have the minimum mortgage payments that you must make each month. But you can also make extra payments toward your loan’s principal. You aren’t required to make extra payments, but it can help you gain that equity faster.
How you make extra payments is really up to you. A few of the most common ways include:
- Make an extra mortgage payment each year
- Pay extra towards your principal every month
- Pay an extra 1/12th of your mortgage amount each month
- Put any windfalls, such as tax refunds or bonuses towards your principal
The more money you pay towards the principal, the faster you grow the equity in your home.
Make Home Improvements
While this step will require you to spend money, it will be money well spent. There are certain home improvements that you can make that can greatly increase the value of your home. Don’t make the mistake of assuming that all improvements will increase your home’s value. Instead, talk to a professional appraiser or real estate agent to see if the changes you are thinking about will help your home’s value.
If you make changes that increase your home’s value, you increase your equity without paying your principal down any faster. Of course, if you make home improvements and pay the principal down faster, you’ll build equity that much faster.
Refinance Your Mortgage
In some cases, refinancing your mortgage can help you gain equity. The best way is to refinance out of a 30-year loan into a 15-year term. This way you pay double the principal and half of the interest, putting your money to good use.
The good news is that you don’t have to refinance if you want to make 15-year payments. If you’d rather save the money on the closing costs, you can just use a mortgage calculator to determine your 15-year payment based on your loan amount and interest rate. You can then pay the necessary extra amount towards your principal to make the loan act like a 15-year loan.
Don’t Borrow From Your Equity
As tempting as it may be, try leaving your home equity alone until you sell the home. This way the equity has time to build without being depleted forcing you to start from scratch again. If you have a goal to have a certain amount of equity by a certain date, you need to stick to your guns and not take a cash-out refinance or home equity loan/line of credit.
Maximizing your home’s equity is a great way to see a good return on your investment. While you can’t predict what the market will do, the hope is that your home continues to appreciate and give you even more equity in your home. If you need help maximizing your home’s equity, ask your lender what you can do to get ahead of your equity.