Are you thinking about refinancing your mortgage? If so, there are several reasons why refinancing…
There are many financial reasons to become a homeowner – one of the primary ones being that as you make your monthly mortgage payments, you build up equity in your home. While your equity will naturally increase as your principal loan balance decreases, there are also opportunities to speed up the process.
Before we get to some of the ways you can gain equity in your home faster, what is home equity, and why is building equity important?
Home equity is the part of your home that you actually own. As you pay off your loan over the years, your principal loan balance will decrease, meaning that you will build more equity in your home. For example, if you purchase a home with a 20% down payment, you have 20% of the home’s value of equity.
When you build equity, your home becomes a valuable asset for you. Some people look at their home equity as a “forced savings account” – similar to making deposits into your bank account, making regular, on-time mortgage payments build up the value of your equity. This can allow you to borrow against your equity, or if you choose to sell your home, you can use that money for another larger purchase, such as buying a new home.
What are some ways you can build your home equity faster? Below are 4 ways you can speed up the process of gaining equity in your home:
1. Increase down payment
One of the ways you can build equity quickly is to increase the amount of the down payment on your home. The more you put down upfront, the more equity you are starting with – like in the example above, if you purchase a home with 20% down, you start with 20% of the home’s value of equity in your home.
2. Pay more towards your principal balance
As you make monthly loan payments, your principal balance decreases, allowing your equity to grow. By making extra mortgage payments, or paying more than you owe each month, you can also increase how quickly you’re gaining home equity. (Be sure to discuss with one of our Mortgage Consultants any potential prepayment penalties associated with paying off too much of the loan ahead of schedule.)
3. Choose a 15-year loan
While the common mortgage choice is a 30-year loan, a 15-year loan may be an option to allow you to grow your equity faster. The higher payment amount and lower interest rate will allow you to pay down the principal balance more quickly, which in turn will build up equity faster.
4. Make improvements to your home
Home improvement projects, from minor remodels to major renovations, can add value to your home. By investing in your home, you increase the equity you have in your home, helping to build your equity more quickly.
Our Mortgage Consultants are available to answer your questions and analyze your situation to help you select the loan options that best help you reach your goals. Reach out today to learn about our variety of loan types that can be matched to your unique needs.