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Building Home Equity

Posted by:  Hancock Mortgage Partners, LLC
2014-09-22 11:20:46

Equity is the part of the property that is actually owned by the homeowner.

For instance, if you bought a home for $250,000 several years ago and you’ve paid your mortgage down to $200,000, you have $50,000 equity in your home. Plus, if the same house is now valued at $300,000, you have an additional $50,000 in equity. Or, the house was bought only a few years ago and therefore the mortgage hasn’t been significantly reduced, but the value of the home has increased by $50,000, there is $50,000 in equity, or value.

Because Americans have become so transitional, many people increase their equity by having the value of their property increase rather than reducing their mortgage significantly.

The following are ways to increase equity other than appreciation (increase in value) of a property:

- Make extra principal payments each month, or as often as possible, to decrease the amount of the mortgage. The added value to this method of increasing equity is that it also reduces the interest paid on the house and, over a few years, that can be a significant savings.

- Obtain a 15-year mortgage rather than a 30-year mortgage. Not everyone can qualify for the higher mortgage payments that a 15-year mortgage will require. But if so, equity will build faster and there will be less interest on the mortgage.

- Make payments every two weeks instead of only once a month. If this allowed by the lender, the 30-year mortgage will be paid-off in about 20 years!

- Make major improvements in the property that will add value. This gives the homeowner the added advantage of living with their improvements while still living in the house.

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