For many homeowners, their property is more than just a place to live—it’s one of the most significant financial investments they’ll ever make. But what if your home could do more than provide shelter? What if it could also be a powerful tool for building wealth? That’s where building more home equity comes in.
So, what is home equity, and why does it matter? Simply put, home equity is the difference between your home’s market value and what you owe on your mortgage, and can be a huge factor in achieving long-term financial security. There are ways to accelerate how quickly you build equity, meaning you can create opportunities to use your home equity for future goals like renovations, moving up in the market, or buying a second home.
What is Home Equity?
Home equity is the portion of your home’s value that you truly own, free from any outstanding mortgage or lien. It’s calculated by subtracting the amount you still owe on your home loan from your property’s current market value. For example, if your house is worth $350,000 and you owe $200,000, then your home equity is $150,000. Think of home equity as a growing financial asset tied to your home. As you pay down your mortgage or as your property value rises, your home equity increases.
What Does It Mean to Build Home Equity?
Building equity means increasing the amount of ownership you have in your home. This can happen in a few ways. First, each mortgage payment you make reduces the outstanding loan balance, which automatically increases your home equity. Second, if the market value of your home rises due to favourable market conditions or home improvements, your equity grows even further.
However, the best way to build equity is to focus on strategies that either reduce what you owe or increase the value of your home. Over time, this growing equity can become a powerful asset you can borrow against, fund life goals, or cash out when you sell your home.
How to Build Equity in Your Home
Building equity in your home is one of the smartest moves you can make to increase your net worth and improve financial security. Let’s explore some of the best ways to build equity in your home.
Make Larger Mortgage Payments
One of the most effective ways to grow your equity faster is by increasing the size of your mortgage payments. By paying more than your required monthly amount, you can reduce your loan’s principal balance more quickly, directly increasing your equity. Even small increases in your monthly payment can have a compounding effect, significantly speeding up the process of paying off your mortgage.
Another option is to make biweekly payments instead of monthly ones. This method results in an extra full payment each year, accelerating principal reduction and building home equity more quickly.
Refinance for a Shorter Loan Term
Refinancing your mortgage to a shorter loan term, such as switching from a 30-year loan to a 15-year loan, can be a powerful way to accelerate equity growth. With a shorter loan term, a larger portion of each monthly payment goes directly toward reducing the principal balance, which means you’re building equity in your home much faster.
While refinancing to a shorter term often results in higher monthly payments, it can save you tens of thousands of dollars in interest over the life of the loan. You can also explore options like refinancing at a lower interest rate while keeping your current loan term, which reduces your monthly payment.
Focus on Home Improvements That Add Value
Making improvements to your home is one of the most effective ways to grow equity, especially when those renovations increase your property’s market value. By enhancing your home’s appeal, functionality, or energy efficiency, you create a larger gap between what your home is worth and how much you owe on your mortgage.
However, not all home improvements deliver the same return on investment (ROI). Some of the most impactful renovations include:
· Kitchen upgrades, such as modernizing cabinets, countertops, and appliances.
· Improving bathrooms with updated fixtures, fresh tile, and more storage.
· Energy-efficient upgrades like replacing windows, adding insulation or installing solar panels.
· Curb appeal enhancements like landscaping, new siding, fresh paint, or upgrading your front door.
Even smaller, budget-friendly updates can still make a big difference. A fresh coat of paint or updated light fixtures can refresh your home’s appearance and increase its value without requiring a significant financial investment.
Keep Your Home Well-Maintained
A well-maintained home retains its value over time and can even appreciate more quickly compared to properties that have been neglected. By staying proactive with repairs and upkeep, you not only preserve your home’s condition but also avoid expensive issues down the road that could negatively impact its market value.
Focus on routine maintenance tasks that keep your home functioning efficiently and looking its best. These can include:
· Roof inspections and repairs
· HVAC servicing
· Plumbing and electrical checks
· Exterior upkeep
· Pest control
