Home equity: How to build it efficiently in 5 ways

Home equity is your most valuable asset and it gives you more financial options. Learn how to kick start building equity in your home. (iStock)

As you make your monthly mortgage payments, you are building equity in your home. Your home equity represents the current value of your home minus what you owe on your mortgage, and it can increase over time. 

Americans have accumulated nearly $10 trillion in home equity and the average homeowner now has more than $200,000 in equity. Some of the most common uses include education expenses, home repairs or renovations, wedding costs, debt consolidation, business expenses, long-term investments or emergency expenses. 

As a homeowner, equity is your most valuable asset and it can be a great resource to tap into. It’s important to understand how equity works, how to build equity and how to use it sensibly.

You can visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.


How to build equity in your home efficiently

Homeowners can build home equity either by increasing the value of their property or by reducing the amount of debt owed. Equity can be accessed through a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance.  

When it comes to building equity in your home, here are some options: 

  1. Increasing mortgage payments
  2. Mortgage refinancing
  3. Making a down payment on your home
  4. Increasing your property value

1. Increasing mortgage payments

Most homeowners make mortgage payments on a monthly basis, or 12 payments a year, until the loan is paid off. Part of each payment goes towards your principal and interest. By making more payments, you can put more money towards your principal each month and build home equity. 

Talk to your lender and make sure your extra payments are going towards your principal. If you don’t, there’s a chance it may go towards the interest. Here are a few ways to pay down your mortgage principal faster:

  • Make one extra payment per year
  • Make small monthly payments towards your principal regularly
  • Split your monthly mortgage payment in half and pay that amount every two weeks, allowing you to make an extra payment towards your mortgage each year
  • Round up each mortgage payment


2. Mortgage refinancing

Homeowners can do a mortgage refinance to get a lower interest rate and have more of their mortgage payment go towards their principal each month. By refinancing from a 30-year mortgage to a 15-year mortgage, you can pay off your mortgage much faster and build up home equity in a shorter amount of time. Use an online mortgage refinance calculator to determine new monthly costs.

While you may be building equity more quickly, payments are typically higher on a shorter loan term. You can explore your mortgage refinance…

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