Build Home Equity Faster

Blog Post Image
Real Estate

Build Home Equity Faster

Home equity is the part of your property you actually own. For instance, if your property’s worth $250,000, and you have a mortgage with a remaining loan balance of $100,000, your equity in the property is $150,000.

Naturally, building home equity comes at a price, usually in the form of larger payments. If building home equity means incurring debt to make ends meet, then you’ve defeated the purpose of building equity in the first place.

The first option in home equity building is to make additional principal payments. One way to do this is to sign up for a bi-weekly mortgage, in which you make two payments per month (which added together equal one monthly payment). You will make the equivalent of 13 monthly payments per year instead of 12, which may seem insignificant. But a 30-year loan with a bi-weekly payment plan is usually paid off in about 20 years.

The other way to build home equity faster is to refinance. If you had a $200,000 30-year ARM at 8.13 percent and replaced it with a 15-year fixed rate loan at 6.75 percent, your monthly payment would go from $1485.69 to $1769.82. You would save $200,000 in interest and build the same amount of equity in half the time.

Another option than bi-weekly mortgage is just to make 1 extra payment towards principle.   Instead of setting up the be-weekly structure with your mortgage company and being held to that type of payment just be disciplined enough to do it either at the end of the year, when you get a big bonus or that tax refund in.  Just make sure you are paying it towards your principle and don't count it as an early payment.  Make your next normal payment as scheduled.  Once again, you're chopping away at that principle ahead of schedule and saving yourself interest which in turn grows your equity faster.