3 Ways You Can Improve Your Home Equity
Building home equity is a natural process: if you send your payments in on time and in full, your equity will grow as your loan balance decreases. However, if you’re looking to speed up the process, here are some ways you can build your home equity even faster.
What is Home Equity?
Home equity is the total amount of your home’s value. An easy way to calculate your home equity is by subtracting your loan balance from the value of your home. If you happen to get a negative number, this means that your home is worth less than what you actually owe.
Home equity is a great financial resource because it can be used in the future for a variety of purposes, such as purchasing a new home.
When paying your monthly mortgage bill, it’s best to pay more than the monthly minimum. The extra money you pay will go towards your principal balance. This will help you not only pay off your mortgage faster, but it will decrease your interest over time.
If you decide to pay more than the required minimum (or if you make payments twice a month), it’s a good idea to let your lender know. That way you can make sure they don’t use that extra money for the next payment.
The terms of your mortgage loan has an impact on building your home equity. If you have the option to choose between a 15-year mortgage loan or a 30-year loan, you will have to consider the pros and cons for each.
For example, choosing a 15-year loan means you can pay off your debt faster and will have an easier time building your home equity faster. The downside is that the monthly payments will be higher than a 30-year loan. The longer the term of payments, the slower the process it will be to build your home equity. Another great benefit to shorter term loans is that it often comes with lower interest rates.
Increase Your Home Value
Another way to build home equity faster is by making improvements to your home. When the value of your home increases, so does your equity. Additionally, it will make for a desirable home to live in if you decide to sell in the future.
It’s a good idea to identify parts of your home that need to be upgraded. Does the bathroom need to be remodeled? Does your basement need to be finished? Do you want to add a patio to your backyard? Do whatever is within your budget and make it a goal to boost your home’s curb appeal for building equity. Try to pick projects that will have the highest return on your investment. That way, you can be confident you are spending your money on the right things.
If you can’t afford to make any large home improvements, there are smaller and cheaper ways you can upgrade your home. This can include decluttering your home or simply doing some basic yard work. However, make sure to address any potential roofing or plumbing issues. Your home equity won’t increase if there are problems with a deteriorating roof.
Making an effort into building your home equity can pay dividends in the future. Although it can seem like a burden to make extra payments or home improvements, it’s certainly going to help you make future purchases. You can use it to pay for your next home, which means you’ll be able to upgrade to a new house or even have a smaller mortgage payment the next time around.