There are a few different ways to explain home equity. Basically, it is the money you make from owning your home. Equity is determined by starting with the total value of your home and subtracting the amount you owe on your mortgages, loans, or any other liens. Until you pay all of these things off, your home is used as collateral. Therefore, whenever home prices rise and whenever you make a payment on your home, your equity increases. The following strategies help in reducing your mortgage principal (which is good news!) granting you an equity boost in your home.
1. Maximize your down payment.
Low down payment options make homeownership accessible for many families who can’t afford 20% down. But just because you’re approved for a 3% down payment loan doesn’t mean you can’t put down 5%, 10%, or 15%. A larger down payment helps you build equity faster and could end up saving you thousands of dollars in interest over the course of your mortgage.
2. Take out a shorter mortgage.
Most homeowners choose a 30 year mortgage to keep their monthly payments low. However, you’ll typically pay less interest and gain equity more quickly with a 15 year mortgage, making it a better overall investment. Also, just like the down payment, if you can’t go from a 30 year all the way down to a 15 year term, try 20 or 25 years instead.
3. Prepay your mortgage.
A lot can happen over the course of a 15 or 30 year mortgage. When your family earns raises or promotions that increase your income, funnel that money into your mortgage payments. Any extra money you put towards your home can go directly into your principal payment and reduce the overall interest you pay on your home. It will also lower the debt on your credit report and help build equity in your home.
The best way to make sure you're making the right decision when it comes to buying a home is by choosing an experienced and knowledgable real estate agent. The Coastal Marketing Group can provide you with just that. Give us a call at (609) 884-4242 to speak with one of our agents today.
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