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7 Ways to Increase Your Home's Equity
Your home's equity is its current value minus the outstanding balances of your mortgage and any other loans secured by the property.
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, after paying off liens and selling costs. Available equity may also support a cash-out refinance or a separate home equity loan. Here are seven ways you can build or preserve your home's equity.
Make a Larger Down Payment
At purchase, your initial equity generally reflects the property value minus all loans secured by it. If the value equals the purchase price and no other lien applies, a $50,000 down payment means $50,000 of initial equity; $75,000 down means $75,000. 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.
Pay Your Closing Costs in Cash
In an eligible refinance, financing closing costs increases your loan balance and reduces the equity you retain. For example, refinancing a $250,000 balance and financing $20,000 in costs would produce a $270,000 balance. Paying those costs in cash would keep the balance at $250,000, assuming no other changes. Purchase loans have different financing restrictions, so do not assume all purchase closing costs can be added to the mortgage.
Pay off Your Mortgage Faster
You can build equity by making additional principal payments, such as an extra payment each year. Confirm that your servicer applies the extra amount to principal. A true biweekly plan with 26 half-payments produces the equivalent of 13 full payments a year; simply splitting 12 monthly payments into two parts does not produce the same result. Check for fees and any prepayment restrictions.
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.
✅ See how extra principal payments can reduce your loan balance and help you build equity over time. This video walks through illustrative repayment examples.
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.
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.
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 illustration only, if a $40,000 kitchen remodel increased the home's appraised value by $30,000, the value gain would be 75% of the project cost. That is not a typical return or a guarantee; results vary by project, workmanship, and local market.
Wait for Home Values to Rise
Market appreciation can increase your equity even without extra principal payments. However, appreciation is not guaranteed, and falling values can reduce your equity.
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.