When entering the real estate market for the first time or as a current homeowner, you may hear the term “equity” thrown around a lot. Understanding what this word means and why it is important can help you improve your financial situation, make wise decisions, and more.
What is Equity?
Equity is essentially the portion of your home’s value that you own. It is the value of your home after you have deducted all charges — such as your home loan balance — against it. You may have little equity in your home or you may have a generous amount. Regardless, you can increase your equity and it can become one of your greatest assets. Your equity can be used as a down payment to purchase a larger home, to help fund retirement, to build up your savings account, and to assist with many other purchases.
How Can I Build My Equity?
There are several ways that you can build your equity. However, it is important to note that this amount of wealth cannot be increased overnight. It is something that can take several years to build. Here are a few ways that you can increase your equity.
Pay Off Your Home Loan
One of the best ways to increase your equity is to pay off your home loan. There are many ways you can speed up this process so it doesn’t take you the full 15 or 30 years until the home is officially your own. A few ways that you can pay off your home loan early include:
- Pay more than the 20% down payment when purchasing the home. This will give you lower monthly payments and you will have less money to pay over the course of the loan.
- Pay extra each month. This could be a small amount on each mortgage payment. You can direct this money so it goes directly towards the principal balance, rather than to the amount of interest you owe.
- Pay an extra mortgage payment each month. If possible, pay a full mortgage payment every two weeks. This will help you pay off the mortgage in half the time and can drastically reduce the amount of interest you will pay. If paid twice a week, consider removing a full payment from each paycheck. Just make sure you can financially afford this option.
Improve the Condition of Your Property
Another excellent way to build equity is to improve your home’s value. Complete various home improvement projects around your house that will improve its condition and will help you make more money if you consider selling the home. This will also help to sell your home at a faster rate as well. Keep in mind that regular maintenance and keeping your home in tip-top condition will also help to increase your equity.
When you understand equity, you will make better decisions regarding home improvement projects, maintenance tasks, loan payments, and real estate. If you have any questions about equity or you are ready to buy or sell your Markham home, contact real estate agent Martin MacFarlane today.