How to Build Equity in Your Home Faster

Building equity in your home is a smart way to boost your net worth and create financial opportunities for the future. Whether you’re looking to refinance, take out a home equity loan, or eventually sell for a profit, the more equity you have, the better your options. If you’re already settled in your home and want to accelerate your equity growth, here are some practical strategies to help you build equity faster.

1. Make Extra Mortgage Payments

One of the most straightforward ways to build equity faster is by making extra payments on your mortgage. When you pay a little more each month or make an additional payment each year, that extra amount goes directly toward reducing the principal balance of your loan. This not only helps you pay off your mortgage sooner but also reduces the total amount of interest you’ll pay over time.

• Tip: Consider switching to biweekly payments instead of monthly. This approach results in 26 half-payments per year, which equates to one full extra payment annually. Over time, this can significantly shorten your loan term and build equity faster​.

2. Refinance to a Shorter Loan Term

Refinancing to a shorter loan term, such as moving from a 30-year to a 15-year mortgage, can significantly accelerate your equity growth. While your monthly payments will be higher, a greater portion of each payment will go toward the principal rather than interest. This helps you build equity much more quickly compared to a longer-term loan.

• Considerations: Make sure the higher monthly payments fit comfortably within your budget. Also, factor in closing costs for refinancing and see if the savings on interest and faster equity growth justify the initial expenses​.

3. Pay for Home Improvements Out of Pocket

Investing in home improvements is a great way to increase the value of your home and, by extension, your equity. Focus on projects that provide a high return on investment, such as kitchen remodels, bathroom upgrades, or enhancing curb appeal with landscaping. However, to truly build equity, try to pay for these improvements out of pocket rather than financing them.

• Tip: Avoid using a home equity loan for renovations, as this simply shifts your equity around instead of growing it. Pay for improvements with savings or a personal loan if possible​.

4. Avoid Mortgage Insurance

If you purchased your home with a down payment of less than 20%, you’re likely paying Private Mortgage Insurance (PMI). PMI can add hundreds of dollars to your monthly mortgage payment without adding any value to your home. Once you’ve built up at least 20% equity, work with your lender to remove PMI, which will free up more of your payment to go directly toward the principal and increase your equity.

• How to Remove PMI: You can request PMI removal when you reach 20% equity or wait until it automatically falls off at 22% equity. Alternatively, you can refinance to a loan that doesn’t require PMI if your home’s value has appreciated significantly​.

5. Shop Around for a Lower Interest Rate

If mortgage rates have dropped since you bought your home, refinancing to a lower rate can save you a significant amount of money on interest. This allows more of your monthly payment to go toward the principal, thus building equity faster. Be sure to compare rates from multiple lenders to find the best deal. Even a slight reduction in your rate can lead to thousands in savings over the life of the loan.

• Pro Tip: If you can, pay the closing costs for refinancing out of pocket instead of rolling them into your loan. This way, you preserve the equity you’ve built instead of diluting it to cover these costs​.

6. Make Lump-Sum Payments When Possible

Consider making lump-sum payments whenever you come into extra money, such as a work bonus, tax refund, or inheritance. Direct these payments toward your mortgage principal to make a significant impact on your equity. Just make sure your lender applies these extra payments to the principal rather than future interest.

• Check for Prepayment Penalties: Some mortgages have prepayment penalties, so review your loan terms before making large additional payments​.

7. Keep Up with Regular Maintenance and Curb Appeal

While major renovations can add value, simple and consistent home maintenance and curb appeal improvements can also help maintain or increase your home’s value over time. This includes things like painting, landscaping, and repairing any minor issues before they become major problems. A well-maintained home is more likely to appreciate, thereby increasing your equity without a huge investment.

• Consider Small Upgrades: Even minor updates, such as new fixtures, fresh paint, or improved landscaping, can make a noticeable difference in your home’s perceived value​.

8. Stay Informed About the Market

Home values can rise over time due to market conditions. By keeping an eye on the local real estate market, you can get a sense of when it might be advantageous to refinance, sell, or make improvements. If your neighborhood is becoming more desirable, simply holding onto your home could naturally increase your equity.

The Bottom Line

Building equity in your home faster requires a combination of smart financial strategies, disciplined spending, and an understanding of the real estate market. By making extra payments, refinancing wisely, investing in high-ROI home improvements, and maintaining your property, you can accelerate your equity growth and make the most out of your home investment. At Mortgage Investors Group (MIG), our Loan Officers are here to help you explore these options and develop a tailored plan to boost your home equity faster. Reach out today to learn more!