New to the concept of Home Equity? We wrote this article to help break it down for you, and to fill you in on different methods of boosting your home’s value in the form of equity.
What exactly is Home Equity?
Good question! Home Equity is the amount of your property that you truly “own”. It’s most likely that you had to borrow some money to purchase your home. With each mortgage payment, your home equity grows. Continue reading for several different methods to consider for your home equity building strategy.
1. Maximize your down payment.
This is a great way to kick start your home equity plan. If you’re able to, aim for 20 percent on your down payment, or as close to that (or more!) as you can get based on your budget. Make sure that you have enough savings left after your down payment to keep yourself comfortable. It’s important to account for your emergency fund here as well.
2. Boost property value by making tactful home improvements.
Your home equity increases when the price of your home increases. If you are aiming on boosting your home equity through renovations, speak to an advisor to find out which key improvements would increase the value of your home based on what is comparable in your neighborhood. Updating your kitchen, landscaping, or bathrooms are a few great ways to build equity.
3. Look for ways to increase your mortgage payments, or refinance to a shorter-term loan.
Take a look at your monthly budget and ask yourself how much you could realistically add to make a larger mortgage payment each month. The more you are able to pay off your mortgage, the sooner your home equity will grow. Consider investing your tax refund, stimulus payments, work bonus, or holiday money as well.
Refinancing to a shorter-term loan will increase your monthly payment but allows you to pay off your more of your mortgage sooner, allowing you to increase your home equity at a faster rate. Make sure this is something you can afford each month before making the switch.
4. Wait for your home’s value to increase.
The price of your home will naturally fluctuate with the market. This is something you won’t necessarily have control over but is good to be aware of.
5. If you can, commit one partner’s salary to home equity related payments.
This option isn’t realistic on every budget. If this is something you are able to do, it will put you on a fast track to achieving your home equity goals.
Home equity is sometimes referred to as a forced savings account. Making mortgage payments doesn’t always feel like a money-saving activity, but every time you pay you are increasing the value of your asset (the equity in your home).
Consider employing these methods to get closer to your home equity goals down the line. And Mechanics Cooperative Bank is proud to offer a variety of home equity loans that can help you use the equity you build into your home once you’re ready!