As a homeowner, each house payment you make helps you build home equity, an important asset which represents the portion of your home that you own. This amount is calculated by subtracting your mortgage balance from your home’s market value. Building equity is like keeping a savings account—your equity is a resource you can tap into when needed. Here are some top ways to build equity in your home:

Boost your property value. Making improvements to your home is a great way to increase your property value. But before you jump into a remodel, be sure to do your research first—identify the renovations that will provide the most return on investment. According to Remodeling Magazine’s 2021 Cost vs. Value Report, the home improvement which offers the greatest return is a garage door replacement.

Pay more toward your mortgage principal. Making extra payments on your mortgage can help build your equity because it decreases the overall total you owe by paying down the principal faster. Some ways to put a little extra toward your mortgage each month may include switching to biweekly mortgage payments or adding a certain amount to your monthly payment. However, make sure to budget responsibly to ensure you’re leaving yourself enough money each month for all your living expenses.

Use bonuses, gifts, and windfalls. Many people choose to use extra cash—such as tax refunds, bonuses, cash gifts, and inheritances—to build equity by paying more toward their mortgage principal. Reach out to your Academy Loan Officer to learn about making sure this extra cash goes toward your mortgage principal, not the interest.

Refinance to a shorter-term loan. The two main benefits of having a shorter loan term are that you typically get a lower interest rate, and more of your mortgage payment goes toward the principal each month. This does mean that your monthly payment will increase, so be sure there’s room in your budget for a larger payment before you consider refinancing. Your Academy Loan Officer can help you determine if a shorter loan term is right for you.

Watch and wait for your home value to rise. Your home’s value may fluctuate with the changing housing market. When home prices increase and demand for housing grows, the value of your home naturally increases. In 2019, U.S. home prices increased 19 percent. Conversely, when home prices decrease, you may lose some equity in your home. It’s important to avoid borrowing too much from your home equity to protect yourself during market downturns.

When it comes to building equity, you can’t go wrong with boosting your property value, paying more toward your mortgage principal, using extra cash, refinancing, and waiting for your home value to rise. We hope these tips inspire you to build equity in your home and enjoy the benefits of homeownership.

At Academy Mortgage, we create life-changing experiences through lending. CONTACT US today to explore your financing options.