You invested in a home and now you want to build equity fast. At first, it may feel like it will take forever, especially since your mortgage payment consists mostly of interest at the beginning.
Fortunately, there are simple ways to build equity fast that just about anyone can use.
Make Extra Payments
Making extra principal payments is the fastest way to build equity in a home fast. There are a few ways you can make extra payments:
- Make bi-weekly payments – Split your mortgage payment in half and pay that amount every two weeks. At the end of a year, you’ll have made 13 full monthly payments because there are 52 weeks in a year.
- Pay extra principal monthly – If you prefer to pay the full amount at once, you can add money to the payment to pay down the principal. Whether it’s $50 or $500 you pay a month, the extra money pays your balance down faster.
- Make 15-year payments – If you have a 30-year term, use a mortgage calculator to determine the 15-year payment and make that each month (if you can afford it). This helps you build equity much faster and own the home much sooner.
Make Home Improvements
Some home improvements will increase your home’s value, helping you build equity without paying down your mortgage.
If you go this route, talk to an appraiser or licensed real estate agent to find out which renovations would give you the best return on your investment. Kitchen and bathroom renovations typically have the largest effect on a home’s value, but other renovations will help too.
Use your Windfalls to Pay Down your Mortgage
If you come into windfalls occasionally, consider earmarking them for your mortgage. For example, if you get a tax refund each year, use it to pay down your mortgage balance. You can do the same with work bonuses, inheritance money, or any other windfalls you receive.
The money will lower your mortgage balance, increasing your investment in the home and your equity.
Wait for the Value to Increase
Real estate naturally increases on its own, in most markets. If you can’t do any of the above or even if you do, the home will naturally appreciate too. The pace is slower than would occur if you renovated the property or made a large payment toward the principal, but it adds to the equity, giving you a greater return on your investment.
Using your Home’s Equity
If you build equity in your home, you can do a few things with it. Most people leave it, enjoying the high rate of return when they sell the home. You can also tap into the equity using a cash-out refinance or home equity loan, using the funds for other purposes rather than leaving it sit in your home.
Your home’s equity is an investment. You can let it sit, saving it for something important like retirement, or use it to satisfy a current financial need – the choice is yours!
Written by the Mortgage Loan Center.