HOW TO BUILD EQUITY IN YOUR HOME FAST
14 Sep, 2021
You own a home but feel like you aren’t building equity fast. That’s a normal feeling, but the good news is there are ways to build equity faster than just making your regular mortgage payments. With a little effort, you can build equity in your home faster than you thought possible.
Here are the top ways to build equity in your home fast.
Make Extra Monthly Payments
Most lenders don’t penalize you for making extra mortgage payments. If you have a little wiggle room in your budget, you may put some of that money toward your mortgage. For example, even just an extra $100 a month can make a difference. It knocks $1,200 off your mortgage a year, or $12,000 in 10 years.
No matter how small your extra monthly payments are, they can help you build equity faster, allowing you to own the home free and clear in less time than the mortgage term you chose. Any extra money you pay toward the mortgage, earmark for the principal, noting it on your mortgage coupon or in the appropriate section if you pay online.
Put Windfalls toward your Mortgage
If you get windfalls, consider paying your mortgage down rather than spending them. For example, if you receive tax refunds, work bonuses, or an inheritance, consider using some or all of the money to pay your principal balance down.
This helps you build equity in your home faster even if you don’t make extra payments. Any money you knock off the principal balance is an immediate increase in your home’s equity. It also helps lower the total interest you pay on the loan since you have a lower principal balance.
Even if you don’t apply the entire windfall, consider putting some of it toward your mortgage to pay the balance down. Consider it like investing in yourself – you’ll have a higher rate of return by paying your principal balance down.
Make Bi-Weekly Payments
If you can’t afford extra money each month, consider paying your mortgage every two weeks. Just take your full mortgage payment and divided it in half. Make the half payment every two weeks – it comes out to the same amount per month, but at the end of the year, you’ll have made an extra mortgage payment because there are 52 weeks in a year or 26 payments.
Refinance your Home
You aren’t obligated to keep the same mortgage you took out when you bought your home. If rates drop or you can afford a higher payment, you have options to refinance.
A rate/term refinance is a great option when you’re trying to build equity. You don’t need the cash out of your home but want to either lower your interest or increase your principal payment. Depending on your situation, you may be able to secure a lower interest rate and use the difference to pay your principal balance down each month or you can refinance into a shorter term, such as a 15 or 20-year term.
If you aren’t sure if you can afford a 15-year term payment regularly, you can keep your 30-year term, but make 15-year term payments when you can afford them.
Make 15-Year Payments
If you have a 30-year mortgage, which is the most common mortgage especially for first-time buyers, you can make 15-year payments.
Using a mortgage calculator, figure out what a 15-year payment would be based on your loan amount, home value, and current interest rate. Make the appropriate payment, allocating the ‘extra’ funds to your principal. You’ll pay the balance down in half the time and save money on interest by paying the balance down faster.
Improve the Property
You can ‘force’ equity in your home by improving it. Not all home improvements increase your home’s value, so always check with a professional appraiser or real estate agent before making changes.
When you invest in your property, you’ll see a return on your investment. It may not be dollar-for-dollar, but increasing its value increases your equity in the home. Kitchen and bathroom renovations usually have the best ROI, but almost any renovation will help improve your property’s value a little bit.
Make a Large Down Payment
You can build equity in your home from day one if you make a large down payment. You may put down as little as 3% - even 0% down, depending on your loan type, but if you have the money saved, consider investing it.
Investing in your home can be less risky than investing the money in the stock market, and you’ll see a nice return on your investment. While you can’t access the money immediately if you need it, there are ways to tap into your home’s equity and release some of the funds invested in it if you need them. If you don’t, though, you’ll have a decently sized investment in your home that will help you with future financial goals.
Get creative when trying to build equity in your home faster. Making your required minimum payments will help you build equity at a slow and steady pace. Your home will naturally appreciate if the market allows it as well.
But if you want to speed things along, consider using one of the methods above to gain more equity in your home. Starting with a large down payment when you buy the home to making extra payments the way your budget allows, it’s easy to build equity in your home fast.
Knowing you can tap into it if you need it is important too. It gives you peace of mind knowing that you can get the money if you need it, but if not, it will help your money grow into one with a great return on your investment.
So many options to build equity and lower your mortgage principal. If you’d like some guidance, we at Valley Mortgage would be happy to have a conversation with you. No cost, no obligation. If you have any questions, please call us at 701-461-8450.