Building home equity is the key to financial freedom and Primary Residential Mortgage, Inc. is here to help.
The first step to building equity is buying a home. After a few years of making mortgage payments, you’ll likely build up some home equity as your home increases in value over the years. Once you’ve built up equity, you’ll have a powerful financial asset you can use to refinance, pay down debt and more.
What is Home Equity?
Home equity is the difference between your home’s value and the amount you still owe on your mortgage.
Example: If your home is valued at $300,000 and you still owe $200,000 on your mortgage, you would have $100,000 in home equity.
You can build equity by either paying down the amount you owe or improving your home’s value. In most cases, you’ll gradually build equity as you make your monthly mortgage payments. But there are also other ways to accelerate equity growth. For example, you can often build equity quicker by paying down your loan faster or investing in improvements that increase your home’s value.
To pay off your loan faster, try making one extra payment per year or pay a little extra each month.
Tip: You’ll usually start with more equity if you have a bigger down payment.
You can also increase your equity by improving the value of your home. This can mean anything from the natural rise in property value as neighborhoods change to home renovations or expansions.
Note: If you borrow against your home equity in order to make home repairs, you’ll be increasing the amount you owe before you increase the value of your home. This may limit the equity you gain from the renovations in the short term, but can still be a good option for long-term investments.
Using Home Equity
You can put your home equity to make repairs, pay off high interest credit cards, or even to fund retirement. You can also sell your home to use your equity to upgrade to a nicer home. Another great way to use your home equity is to refinance your loan.
Using your home equity to refinance your mortgage can help give you a lot of financial flexibility and get you into a new loan that fits your current circumstances. Refinancing may help you:
- Reduce your monthly payment
- Eliminate mortgage insurance
- Get a more favorable interest rate
- Shorten the term of your loan so you can pay it off sooner
- Get money for home renovations
Refinancing options are available with either a fixed interest rate or a variable interest rate. Just like with most interest, a fixed rate will be the same every month and a variable rate could change from month to month. The right refinancing loan for you will depend on your specific situation. You should consult a Loan Officer to get the right information for your circumstances.
Equity is what makes buying a home such a powerful investment. As your equity grows, you gain more financial freedom and increase your spending power. And the sooner you start building your home equity, the more time you have for it to grow.