Strategies for Increasing Your Home Equity

Key Takeaways 

• Two main ways to increase equity are to raise the value of the home or lower the balance of your mortgage. 
• If you want to raise your home’s value, consider home improvement projects where you’re likely to recoup most or all of your costs. 
• If you want to lower your mortgage balance, try making a half-payment every two weeks, which will speed up the process. 

When you build equity in your home, you’re increasing what you own compared to what you owe. For instance, suppose your home’s value is $600,000, but you still owe $500,000 on your mortgage. The difference – $100,000 – is your equity, or the portion of the home you own. 

 There are two main ways to increase home equity: by decreasing your mortgage balance or by increasing the home’s value. For example, if you wanted to grow your equity to $200,000, you could get it by paying another $100,000 toward your mortgage or by increasing the value of the home to $700,000.  

Building equity can help increase your net worth, grow your wealth, and provide you with an asset you can sell for profit or use as collateral on a loan. Here’s how to increase your home equity and gain more options for your financial future, too. 

Ways to Increase the Equity in Your Home

On average, home values rise roughly 4% year over year, although it varies from year to year and place to place. But in general, you could increase your home equity simply by being patient and waiting for your home to appreciate. If you prefer a more active approach, try one of these strategies to increase your equity. 

Make Home Improvements

Home improvements tend to increase the value of your home (although by how much depends on a few different factors, such as the scope of the project and materials used). Whether you decide to boost the curb appeal with landscaping or overhaul the kitchen, the average return on investment is typically around 70%. So, if you spend $50,000 on the project, you might increase your home value (and equity) by $35,000.  

Some of the home improvements with the best return on your investment are:  

• Remodeling your bathroom 
• Doing a minor kitchen remodel 
• Installing new garage doors 
• Replacing your front door with a new steel one 
• Installing new siding, especially cement board or engineered stone veneer 

It’s important to make a strategic plan for your home improvements so that you can prioritize the ones that will bring the most value for a price you can afford. 

If you don’t have cash on hand to pay for improvements right now, an Unlock HEA, or home equity agreement is one way to fund renovations without taking on additional debt or making loan payments. With a home equity agreement, you get cash up front in exchange for a portion of your home’s future value. Unlike home equity loans or HELOCs, you don’t have to have great credit to qualify, and there are no monthly loan payments, either.  

Choosing Unlock for an HEA means you can make improvements to your home and keep the increase in value for yourself with a Maintenance Adjustment. In other words, if your improvements add $50,000 in value to your home, you can keep that increase in value – you don’t have to share it with Unlock when you sell.  

Pay Down Your Mortgage

Another way to increase your home equity is to lower your mortgage balance. Your monthly mortgage payments build equity slowly over time, but you can speed that process up by paying down your principal faster: 

• Pay biweekly instead of monthly: When you pay half your mortgage every two weeks, you’ll wind up making 26 half payments, equal to 13 whole payments – one more than the 12 you’d make paying monthly. That extra payment will speed up the time it takes you to pay down your balance and build up your equity. 
• Pay extra every month: Another way to do it is to stick to a monthly payment schedule, but add a little extra – $50, $100, whatever you can afford. 
• Make lump-sum principal payments: If you find yourself with a windfall from a bonus, tax refund, or other unexpected cash, put it toward your mortgage. Bigger lump-sum payments like these can bring down your principal faster. 
• Refinance to a shorter term: Another option is to refinance to a shorter term. For instance, if your current mortgage is a 30-year term, refinancing to a 15-year term could speed up the rate you pay down your balance. (Just keep in mind that your monthly payments will likely increase when you compress your payment timeline.) 

Eliminate Private Mortgage Insurance

If you bought your home with a down payment that was less than 20% of the purchase price or refinanced your loan when you had less than 20% equity in your home, your lender likely required you to buy private mortgage insurance or PMI to protect its investment. PMI can be paid upfront at closing, but the premium is typically added to a homeowners’ monthly mortgage payment. While the cost varies based on the amount of your down payment, credit score and price of the home, in some cases, PMI can add hundreds of dollars to your monthly payment. Lenders are required to drop PMI once you have 22% equity in your home (or once you reach the midway point of your loan’s amortization schedule). You can also request a cancellation of your policy once you reach the 20% equity mark. Eliminating that cost can shore up money you can apply to your principal – an important step in increasing the equity you hold in your home.

Conclusion 

Building equity in your home is an exciting way to build wealth for your family and your future goals. Take steps to preserve and improve the value of your home while paying down your mortgage balance and your equity will increase over time.