Building Equity - There are quite a few ways to build equity in your home faster than a traditional fixed rate mortgage will allow. Within the first six years of your home, for every dollar you apply towards your mortgage, approximately twenty cents will go towards reducing your principle, or the original loan amount borrowed.
One way to increase the amount applied towards your principle is to increase your monthly payment to a higher amount. If this is not possible than structuring your mortgage with a bi-weekly payment plan will help to decrease your principle balance and increase the equity in your home.Building a home also has an advantage over buying an existing home. When you build you usually end up with instant equity at the end of the construction phase. If you have good credit and want to build you should consider a construction loan or a one-time-close loan.
If you get a tax refund check every year, rather than spending it or put it in your savings account, apply it towards paying down the principal of your mortgage. Interest rates offered by most savings accounts and CD's do not come close to the interest rate charged on your mortgage loan. Paying down the principal in the early years of your loan can significantly lower the total interest expense in your mortgage over the life of your loan.
Instead of making an extra mortgage payment, many of the savviest personal real estate investors use any additional capital to invest in additional assets, which over an quivalent time period tend to build more value than additional payments to principal. Instead of trying to pay off your house 7 years faster, in certain areas it may be more profitable to invest that money in additional property. Assuming a 30 year mortgage, ask yourself, "How much was my house worth 23 years ago?". In most areas of the country, the answer might be 1/5th or even less of its current value. Now ask yourself how much even a relatively small additional investment would be worth in the same amount of time. In many areas you will likely find that owning more property is more lucrative than paying down principal, because they can always print more money, but they aren't making any more land.
Not all lenders allow you to structure and pay weekly or bi-weekly directly with them. You can do this on your own if you are diligent. Take your monthly mortgage payment and divide it by 4. If you always dedicate or set aside this dollar figure every week then in the months that have 5 weeks instead of 4 you add those additional funds to your principal that month. At the end of the year you will have put an entire monthly payment directly towards reducing your principal balance.
If you can make one extra payment per year you will end up knocking 6-7 years off of your mortgage.
Although property values are not garunteed to increase they have always risen and historically performed well. There may be times where values decrease slightly or stagnate but your investment in real estate will 99% of the time increase in value over time.
There is one very simple way to build equity without making any additional payments on your mortgage. That is simply to own property. In some areas of the country, southern California for instance, property values have risen over 20 per cent per year for the past couple of years. Although property is not guaranteed to increase in value, you can see that the more real property that you own the chances are very good that the more equity you will be building.
Building equity also comes from natural appreciation in your property. If you are in an up and coming area the value of your home, and equity will increase at a quicker pace.
Building equity - Obtaining a mortgage and making a payment that covers the principal and interest portion of your mortgage payment will help you to build equity in your home. Every time you make a payment on your mortgage the portion of your payment that is applied to principal is used to decrease your mortgage balance. This is one way to help you build equity in your home. On a 30 year mortgage it will take you a much longer time to build equity than if you were on a 15 year mortgage. The reason is because on a 15 year mortgage there is a much larger portion of your payment being applied towards the principal portion of your payment and a smaller amount being applied towards the interest portion as opposed to a 30 year mortgage. Therefore while lowering your term can help you build equity much quicker it is not always feasible or affordable to lower your term down to a lower term. Every little bit helps, even a 25 year mortgage vs. a 30 year mortgage will help to build equity and pay your loan down quicker.
If you are buying a new home from a developer you can usually arrange to leave a certain amount of the property unfinished. Finishing the property yourself gives you what is called "sweat equity".
Some people choose interest only loans. By paying interest only you have a reduced payment but build no equity.
Another way to build equity is to buy an under-valued home in an appreciating neighborhood.
This involves speculation so be careful not to depend on appreciation in order to make your payments.
Speak with your Preferred Realtor or Mortgage Broker for tips on how to buy a home for less than full market value.
You can also build equity faster by making a down payment on the purchase of your home or making extra payments to your mortgage principal.
You can also opt for bi-weekly payments on your mortgage instead of paying once a month to build equity faster. Another way to build equity is to making is to make improvements that add to the value of your home. But you must outweigh the costs associated with making those upgrades to how much value it will add to your house.
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