May 22, 2023

A Beginner's Guide to Building Home Equity

Estimated reading time: 2 minutes

Building your home equity as a homeowner has incredible benefits for both your wallet and your home’s property value. Home equity is the dollar amount or percentage of your home that you own. It’s the difference between how much your home is worth and the balance you owe on your mortgage. There are several ways you can build your equity, so we’re looking at four top ways you can increase yours.

1. Pay More Than the Minimum

Mortgage payments work on an amortization schedule, meaning you make payments over a set period (your loan term) until the loan is paid off. You will always be paying both the principal of your loan and the interest; however, your initial payments mostly go toward your interest. Just like with credit cards or your car loan, paying more than the minimum monthly payment puts more money toward your principal and thus helps to build your equity.

If you choose to do extra payments on your mortgage, be sure you’re allotting yourself enough money to still pay your expenses and debts each month.

2. Increase Your Property Value

Typically, your property value naturally appreciates over time as you maintain the home and pay down your mortgage. Property values may fluctuate based on market trends and inventory. To ensure your property value increases no matter the market, be sure to build your curb appeal and make renovations that have a high return on investment (ROI).

3. Stay in Your Home for At Least Five Years

According to experts, it can take anywhere from 5 to 10 years to build up 15-20% equity. By staying in your home for a minimum of five years, you’ll more easily recoup the upfront costs of the home and avoid losing money.

4. Refinance or Shorten Your Loan Term

Interest rates have been topsy-turvy recently. If rates have dropped since you originally purchased your home, you can refinance your loan to obtain a lower rate. Alternatively, you can shorten your loan term to allot more of your monthly payments to go to the principal instead of interest. Always speak to your Loan Originator first, as shortening your loan term even by a few years can result in a higher monthly payment.

A family of adult children and older adults spending time together in the kitchen of their home.

Your home is a major investment, so it’s important to get your mortgage from a lender who cares about your success. When you’re ready to purchase a home to build your own equity or use yours for a refinance, contact us today!

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