Ways to Build Equity In Your Home
Equity is your property's market value, less your outstanding mortgage debt. For example, if your home is worth $450,000, but you owe $100,000, then you have equity of $350,000. One of the greatest financial benefits of owning a home is building equity.
Your equity may increase if you live in an area where home values are increasing.
You can also work to increase the value of your home by decreasing your owes and/or increasing your property's value. These are two ways you can do it.
Mortgage Payments
A portion of your mortgage payment goes to principal and interest payments. The majority of the payments go to the interest for the first years of your loan. Your equity will increase if you pay off the principal more quickly. There are several ways to do this.
Paying More:
A 30-year mortgage can allow you to increase your monthly payment or when you have more cash. This will help you build equity. Paying more should be applied to your principal by your lender. This is a great way to use your tax refund, a bonus from work, or an inheritance.
Faster Payments:
Your monthly mortgage payment could be divided into two biweekly payments for a total of 26. Instead of making 12 monthly payments, you can make 13 to pay down your mortgage faster. You also gain more equity. Check with your lender to confirm that bi-weekly payments are acceptable. Ensure that the additional money is paid immediately to the principal and not wait for the second payment. Reputable lenders won't charge you a fee for biweekly payments.
Refinance:
If your 30-year mortgage is due, you might consider refinancing to a 15-year loan with a lower interest rate. This is only worth considering if your interest rate drops by at least 1.5%. Before you make this move, consider closing costs. Also, make sure you don't have any prepayment penalties. Although it is not very common, it is worth checking.
Consider whether these are the best options for you before making a decision. For example, you might be better off investing extra in your 401(k) than you are paying down a low-interest loan. Talking with a financial adviser is a smart way to find the right investment strategy.
You should also have a six-month emergency fund in case of illness or loss of work.
Renovate Wisely
Smart improvements and the addition of the right amenities can increase your home's market value. This will give you more equity.
Even if you just moved in, there are home improvement projects that buyers love. These include bathrooms, attics and entrances, kitchen upgrades, garage doors, siding, and garage doors. You should consider the market for popular features in your area.
When deciding how much to spend on your home, consider your market. How much you get back when you sell your home will depend on whether it is a seller's or buyer's market.
