Building equity in your home is like getting a good return on your investment. Even if you don’t cash out the equity and use it while you still own the home, it’s nice to know it’s there should you need it. Some people rely on their home’s equity for an emergency fund and others use it to reinvest in their home, making home renovations.
If you didn’t make a large down payment, how can you build equity faster? Check out the top ways.
Make Extra Payments
Did you know you can pay more than your required payment? Any extra you pay, brings the principal balance down faster, increasing your home’s equity. You can make extra payments sporadically or on a schedule to help increase your equity:
- Pay a set amount extra each month, such as $100
- Make bi-weekly payments, splitting your monthly payment in half (you’ll make 13 monthly payments)
Apply Windfalls to your Mortgage
If you come into money for any reason, consider putting it toward your mortgage. If it’s money you didn’t expect or didn’t count on, invest in yourself by paying your mortgage down faster. A few common examples of windfalls you could apply to your mortgage are:
- Tax refund
- Stimulus money
- Escrow refund
Refinance to Reduce your Term
If you’d rather have an official payment so you know how much equity you have, reduce your term by refinancing. You can refinance from a 30-year term to just about any term you can get based on your qualifications. Common terms include:
- 10 year
- 15 year
- 20 year
- 25 year
Make Home Improvements
Some (not all) home improvements increase your home’s value. This naturally increases your home equity even if you don’t make extra payments.
If you’re thinking of making home improvements, talk with a professional appraiser and/or real estate agent to find out how the renovations you plan may affect your home. You may be surprised to learn how little projects, especially those dealing with curb appeal can quickly increase your home’s value.
Find Ways to Save
Sometimes finding little ways to save in your regular budget helps pay your mortgage down faster. Any money you save should be earmarked for the mortgage. Set up a separate savings account to keep the funds and make payments as you see fit.
Here are some great ways to save:
- Cut the cord on cable
- Shop for cheaper insurance
- Negotiate lower credit card rates
- Shop grocery sales and use coupons
- Only shop sales for household goods
Any way that you can build equity is a great strategy. You’ll own your home faster and have a larger emergency fund should you need it. If the pandemic taught us anything, it’s that we all need to be prepared for the worst. Your home is your largest investment. When you handle the payments right and get out of mortgage debt quickly, you can get the most out of your investment.