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Dispelling the Home Equity Myth

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By : Schmuely Goldberg    99 or more times read
Do your dreams involve owning a luxurious home? Perhaps one with multiple bedrooms expansive gardens – or even a lap pool? For me, there’s a deck that evokes casual elegance, along with modern furniture and accent lighting in my ideal home.

Whatever your dream looks like, the act of pondering the perfect palace is a healthy one. The more practical questions, however, are around putting a price tag and an address on your estate-to-be.
Where is your home located? How accessible is the neighborhood? How safe is the community? These are all key factors for the practical dreamer, which you’ll want to look at when appraising equity. And after all, it’s the building of equity and ultimately owning your home outright that will allow your dream to endure.

So in this article we are dispelling the common misconception that the only way to build home equity is to pay off your mortgage as quickly as possible and walking through some specific ways you can build equity in your home.

  1. Pay Off Mortgage Equity

    • Down Payment: Pay a Bigger Percentage Value

      The first smart move you can do early is pay a bigger sum if you have the money. This is a wise choice because your investment equity starts as soon as you pay the down payment. The bigger percentage you pay, the quicker your equity value rises.

    • Monthly Period: Pay a Little Extra In Advance

      Once your mortgage schedule starts, you are required to pay a specific sum of money on a month to month basis as fulfillment to your loan obligations. Paying a little extra when you can will pay off the debt faster. It is also best that you pay on or before your due date since mortgage loans charge penalty of late payments made. If you’ll ask me, it’s better if you do the contrary, pay in advance especially when your banks offer rebates for early payments. These little things, when computed, can surprisingly add up as a big amount and could be used as added payments to your loan. If you do this on a regular basis, you’ll be surprised that your scrimping pays off in a big way.

    • Lumpy Strategy: Save for Lump Sum Payments Each Year

      Set aside at least 10% of your salary off of every paycheck, as well as some windfalls that come in the form of job promotions, tax refunds and gifts. By the end of each year, you’ll have an additional lump sum money that cuts off of your loan balance; you’ll be surprised by how much these can make a substantial difference to your home’s equity.

    • Terms of Endearment: Shorter Is Better

      While some things are better long, such doesn’t always apply to mortgage terms. When I signed up for a loan five years ago for this four-storey townhouse, I thought longer term with fixed interest is the best option since I can spread the loan balance over a 20-year period so that the monthly amortization comes in smaller. Bad move, missy. I have paid the 5-year mortgage and still had a very large loan balance left because a big percentage of my payment is just for the interest. One thing I learned, although monthly payments may seem hefty, having a mortgage term of around 10 years builds equity much faster than a 20-to 30-year term. I was stuck with an 8.75% fixed interest when every bank now offers 6%, I am forced to deal with a bank where the concept of ‘customer service’ is unheard of.

    • Pimp Up Your Crib

      Another way you can increase your home equity is by making improvements. By doing regular maintenance checks and repairs, your home doesn’t deteriorate fast and will stay in tip-top shape. Of course, if you are on a tight budget, you need to prioritize which ones needed more attention and urgency. While all other parts of the house needs the same extra care as any, the most parts which add up most value are those most visited: the deck or exterior parts, the kitchen and baths so make sure you put more attention into these areas.

      Increasing the potential resale value of your home requires thought and care. Never act on impulse and make sure you go through each option as thoroughly as possible to make sure that all your questions are addressed. Also, having an estate resting in the middle of a forest is just absurd. No matter how you pimp up your home, it won’t grow much value unless Elvis lived there. It is important to note that choosing a property should include all aforementioned considerations such as its location, the community and the developments that may about to happen, as well as population demographics so be sure to do your homework and choose wisely.

So, if you’re looking to turn those daydreams into reality, be sure to be creative and think outside of the mortgage box. There are more than a few ways to accelerate equity on your future dream home.
About Schmuely: When he’s not pursuing his love of cooking or coaching his son's soccer team, he can be found in Seattle writing real estate related guides such as How Probate Works & Selling an Inherited Home.

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