How to Build Equity in Your Home
7 Ways to Increase Your Home’s Equity
Your home's equity is the difference between its current value and the balance of your mortgage, plus any other loans secured by your home.
For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. If you also have a second mortgage for $25,000, then you have $75,000 in equity.
The more equity you build, the more you may benefit when selling your home. Additionally, having significant equity can allow you to access cash through a cash-out refinance. Here are seven ways you can build the value of your home’s equity!
1. Make a Larger Down Payment
When you first buy a home, your equity is equal to the amount of your down payment. For instance, if you put down $50,000, you start with $50,000 in equity. A larger down payment, such as $75,000, means you begin with more equity.
A larger down payment may help you avoid paying for mortgage insurance, and it can also reduce the amount of interest you pay over the life of the loan, as you’ll be borrowing less to purchase the home.
2. Pay Your Closing Costs in Cash
In some cases, you can roll your closing costs into your mortgage. For example, you might get a mortgage for $270,000, where $250,000 is used to buy the home and $20,000 covers closing costs. By paying closing costs in cash, you reduce the amount you borrow and start with more equity in your home.
3. Pay off Your Mortgage Faster
Paying off your mortgage faster is a great way to build equity. You can do this by making extra monthly payments, paying bi-weekly instead of monthly, or making an additional payment once a year.
If you come into a large sum of money, you can make a lump-sum payment toward your principal. This will increase your equity and help you save on interest by reducing your mortgage balance.
4. Refinance and Pay Down Your Mortgage
When interest rates drop, refinancing your mortgage may allow you to save on interest. You can build equity faster by keeping your monthly payment the same and applying the interest savings toward your principal. Learn more about refinancing options with
eCash Mortgage.
5. Refinance to a Shorter Loan Term
Refinancing to a shorter loan term can help you build equity more quickly, as you’ll pay off your mortgage faster. Shorter-term loans also typically result in less interest paid over the life of the loan. Keep in mind, however, that this often means a higher monthly payment.
6. Make Valuable Home Improvements
Making upgrades to your home can increase its value and boost your equity. However, not all improvements add value on a dollar-for-dollar basis.
For example, according to the National Association of Realtors, a full kitchen remodel typically recoups about 75% of the cost. So, a $40,000 kitchen remodel might add $30,000 to your home’s value.
7. Wait for Home Values to Rise
One of the easiest ways to build equity is to wait for your home’s market value to increase. When the value of your home goes up, your equity automatically rises as well.
Home prices are influenced by factors such as supply and demand, economic conditions, and interest rates. Learn more about home price trends with
eCash Mortgage.