When buying a home, one of the most important things to consider is your equity. What is equity? Equity is the difference between the current market value of your home and the total amount of money you still owe on your mortgage. Building up your home equity is substantial because it can help you secure a loan in case of an emergency, or it can help you get a lower interest rate on future mortgages. In fact, if you can refinance your mortgage for a shorter term, things will be much better. In today’s post, we will explore some of the top things to keep in mind when building your home equity. Let’s get started.
Extra Mortgage Payments
Making extra payments is a great way to increase your home equity. Every time you make an additional mortgage payment, a portion of that payment goes toward the principal balance on your loan, which increases your equity. If you can make more than one extra payment per year, this can add up quickly and help you build your home equity faster. Make sure to consult your lender to discuss how extra payments might affect the terms of your loan.
Shorter Term Refinancing Options
Refinancing your mortgage for a shorter term can be a great way to build up your home equity. By refinancing, you can lower the interest rate on your loan and pay it off much quicker than if you had kept the loan’s original terms. This means that more of each payment goes toward paying down the principal balance on the loan, thus increasing your equity. No matter which route you choose, do your research and weigh all your options before making a decision.
Home Improvements With Good ROI
When it comes to home improvements, it is important to focus on projects that will increase the value of your home. Projects like updating the kitchen and bathrooms, adding landscaping or a deck, and making energy-saving updates can all make your home more desirable and add to the market value of your property. Therefore, when you decide to make home improvements, remember to invest in those that will give you a good return on investment and help increase your home’s value.
Private Mortgage Insurance
In order to help protect the lender’s investment in case of default, some lenders require buyers who put less than 20% down to purchase private mortgage insurance (PMI). However, this can be a drag on your finances and limit your available money for other investments. One way to get rid of PMI is by building up enough equity in your home so that you can drop the insurance. This can be done by making extra payments, refinancing for a shorter loan term, or increasing the market value of your property with home improvements.
Building up your home equity is an integral part of owning a home and should not be taken lightly. By keeping these points in mind, you can maximize your home equity and ensure that you are in an excellent financial position. Whether you are trying to secure a loan in the future or just want to be financially prepared, remember these key points when building up your home equity.