If you’ve got a mortgage on your home, not only do the regular payments you make go towards paying off your property, they also go towards building equity.
Basically, equity is the difference between your home’s value and your outstanding mortgage balance. Real estate has a wonderful way of increasing in value over time – which helps build even more equity.
Having equity is a fantastic financial leverage to have. As it grows, your financial flexibility is also given a boost. Think of it as an extra source of funding that you can tap into when the unexpected occurs. You can use the equity in your home to pay off other debts with high interest rates, renovate your home, or purchase a vacation property.
And if you ever sell your home down the line after building up a significant amount of equity in it, you can really cash in on the spike in value.
Making regular mortgage payments in full and on time each pay period is obviously how equity is built up. There are ways that you can speed up the process.
Make Bi-Weekly Instead of Monthly Payments
What’s the difference here? Whether you make payments monthly or bi-weekly, wouldn’t the end numbers be the same?
Not exactly. While you would be making 12 equal payments in a year if you paid your mortgage monthly, bi-weekly payments are equivalent to making 13 monthly payments because 26 payments would be made. Putting a little more money into the mortgage helps reduce the loan’s payoff time.
Faster accumulation of principal and equity also means a reduction in interest owed on the mortgage by using a bi-weekly payment schedule. At the end of the day, you’ll get more value per dollar and save a ton of money as well – as much as 25 to 30 percent in interest over the life of the mortgage.
Go With the Wealth Building Home Loan
Forget the 30-year mortgage that’s been super popular among homeowners over the years. There are other mortgage products out there that help to build equity fast, and one of them is the Wealth Building Home Loan (WBHL). This program takes risk out of the financial system by giving borrowers a much safer means of achieving homeownership and financial security as compared to a 30-year loan that is paid off very slowly (while placing a heavy debt burden at the same time).
The WBHL is a 15-year mortgage at a fixed-rate that allows homeowners to build equity quickly. It encourages borrowers to become self-disciplined when it comes to keeping enough money aside for the mortgage, and requires little or no down payment.
Borrowers can use all or part of the typical down payment to buy down the interest rate on the mortgage, which could translate into significant savings over the life of the loan. For low-income borrowers, the interest rate can be brought down even further with the financial assistance from lenders or government programs.
Make Home Improvements That Are Highly Sought After in Your Area
It might sound counterintuitive to spend money in order to make it. However, when it comes to home improvements, certain projects can significantly add to the overall value of the property in comparison to what they cost.
This is what return on investment (ROI) is all about. While certain improvements may not be worth the money, others have been proven to put more into the value of the home than they cost. By making smart home improvements where the expected value exceeds the expense, you can effectively boost your home equity by having a house that’s worth more.
Make a Bigger Down Payment
You can put forth a larger down payment to automatically gain home equity. While this idea might seem like you’re putting capital towards an illiquid investment, more equity translates into a lower loan-to-value ratio, which means a lower interest rate and financing that’s easier to get approved for. Over the years, a lower interest rate will mean a lot less interest paid and more equity accumulated.
At the end of the day, more equity equals more wealth. Aside from having a roof over your head, real estate can supply you with a secured means of building wealth that’s tough to match. Contact your mortgage specialist and real estate agent to find out if any of these methods – or others out there – can help you effectively build equity quickly and comfortably.