Build Home Equity Faster

Real Estate

2 Easy Ways to Build Home Equity Fast!

Home equity is a homeowner's interest in a home. It can increase over time if the property value increases or the mortgage loan balance is paid down. Put another way, home equity is the portion of your property that you truly “own."  For instance, if your property’s worth $250,000, and you have a mortgage with a remaining loan balance of $100,000, your equity in the property is $150,000. 

Naturally, building home equity comes at a price, usually in the form of larger payments. If building home equity means incurring debt to make ends meet, then you’ve defeated the purpose of building equity in the first place. When it comes to comparing interest rates, a home equity loan has advantages over credit cards and other non-secured loans. Interest rates on home equity loans have historically been substantially lower than credit card and other non-secured loan interest rates. Most other types of loans carry no tax advantages.

Below are two easy ways to build home equity faster!

1.) The first option in home equity building is to make additional principal payments. A principal payment is payment made on a loan that reduces the amount due, rather than a payment on accumulated interest. Keep track of the payments made on loans. One way to do this is to sign up for a bi-weekly mortgage, in which you make two payments per month (which added together equal one monthly payment). You will make the equivalent of 13 monthly payments per year instead of 12, which may seem insignificant. But a 30-year loan with a bi-weekly payment plan is usually paid off in about 20 years. Maybe you are wondering, How do I calculate my principal payments? Divide your interest rate by the number of payments you'll make in the year (interest rates are expressed annually). So, for example, if you're making monthly payments, divide by 12. 2. Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount.

2.) The other way to build home equity faster is to refinance. A refinance, which pays off your current mortgage with a new loan's proceeds, allows you to tap into your home's equity or obtain more favorable loan terms. A no cash-out refinance allows you to change your interest rate and lengthen or shorten your repayment term. If you had a $200,000 30-year ARM at 8.13 percent and replaced it with a 15-year fixed rate loan at 6.75 percent, your monthly payment would go from $1485.69 to $1769.82. You would save $200,000 in interest and build the same amount of equity in half the time.