10 ways to increase the equity in your home

 

1. Rising home prices – when home prices rise, you will gain equity simply because your home will be worth more. For example, if your home is currently worth $100,000, if it rises to $125,000 in five years, you’ll have $25,000 more equity. Unfortunately, the opposite can also occur.
2. Falling mortgage balance – as you pay off your mortgage each month, you pay a portion of interest and a portion of principal.  Every time you make your mortgage payment you’ll gain some home equity.
3. Larger mortgage payments – if you make larger payments each month, the extra portion goes toward principal, you will pay off your mortgage much faster and gain home equity a lot quicker.
4. Biweekly mortgage payments – you can even go with a biweekly mortgage payment plan, where you make 26 payments throughout the year. This will shave down your mortgage term, save you a ton in interest, and help you build home equity a lot faster.
5. Shorten mortgage term – you can also refinance into a shorter-term mortgage with a lower mortgage rate, such as a 15-year fixed, which will increase the size of your payments, but build equity much faster than a traditional 30-year mortgage.
6. Avoid refinancing – conversely, if you don’t refinance and pull cash out, you’ll retain all the equity in your home. During the boom, many homeowners refinanced over and over until they sucked their equity dry.
7. Home improvements – if you make smart home improvements, where the expected value exceeds the cost, you’ll increase your home equity by having a home that’s worth more. While it’s seemingly completely played out, granite countertops and stainless steel appliances still draw buyers in, and you can sell for more.
8. Maintenance – keep your home in tip-top shape and you will be rewarded when it comes time to sell. If you can unload it for more as a result, you’ve essentially created more equity in your home.
9. Curb appeal – same goes for staging. Make your home look good when you list it and there’s a better chance it’ll sell, and sell for more. Simple things can make a big difference, such as new paint, carpet, bright lighting, cleanliness, plants, flowers, etc.
10. Bigger down payment – finally, you can make a larger down payment at the outset to automatically acquire home equity. While this may seem like you’re putting money in an illiquid investment, more equity means a lower loan-to-value ratio, which equates to a lower interest rate and easier-to-obtain financing. Over time, that lower rate will mean less interest paid and more equity accrued.