5 Tips for Building Home Equity
Here’s a list of ways you can accelerate your home equity’s growth:
1. Increase Your Monthly Payment
If you can afford to pay more than the minimum due each month, you’ll increase the rate at which your equity grows. Some homeowners add a fixed amount to their monthly minimums that is designated to be applied to reduce their principal, while others choose to pay the minimum every two weeks instead of once a month (effectively adding an extra month of payments each year). However you decide to increase your monthly payment, make sure you specify that the extra amount goes toward your principal.
2. Make Home Improvements
Equity is the overall value of your home minus what you still owe, so if you increase the amount your home is worth, your equity will increase too. Consider home improvement projects that will enhance your property value, like adding insulation or redoing your kitchen.
3. Use Windfalls Wisely
Receive a cash gift, an inheritance, or a bonus at work? As tempting as it might be to take a tropical vacation, applying these unexpected funds to your mortgage is a more financially rewarding decision.
4. Dedicate One Partner’s Salary
If you share your home with a spouse or another domestic partner, and you’re both in a good financial position, consider living off one person’s salary while devoting the other’s to maximizing your mortgage payments.
5. Refinance to a 15-Year Mortgage
Shorter loan terms require larger payments, meaning you’ll build equity faster. If you have a 30-year mortgage and refinancing makes sense for you, switch to a 15-year term to pay your loan down more quickly. Ideally, you’ll have a lower interest rate too, so you’ll have even more money to apply toward home equity.
Not everyone can afford to build equity faster than paying the monthly minimum allows, and that’s okay—growing a valuable asset at a steady pace will still pay off in the long run. The more you can increase your equity up front, however, the stronger position you’ll be in down the line.
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