107899274_ef25a91b2a.jpgHome equity is determined from the difference between your home’s market value and what you owe on your mortgage. It can be a symbol of economic strength and can be leveraged a number of ways to help you pull money from your home for extra repairs, remodeling, or major financial emergencies. If you want to build some security in your finances, you can start by trying to build equity in a home.

The Fifteen Year Plan

In the past, your two choices for mortgage loans was 15- or 30-year terms. Now, due to the proliferation of different loans you can find mortgages with 25- or even 40-year terms. Longer payoff terms are good for spreading out your tax advantage since interest on home loans is deductible. It’s also good for lowering your payment. The problem is that the longer the term is the slower your equity will rise. If your goal is to build equity quickly, then you can opt for a 15-year loan. They come with a lower interest rate and the payments are not that much higher. You will also reach 20% equity much quicker, allowing your to forego Private Mortgage Insurance (PMI) and save money this way too.

Make Extra Payments To Principal

Even if you have a 30-year loan, you can still build equity quicker by paying extra on your monthly payments. This reduces the amount of principal on the loan and affects the amortization schedule reducing the number of payments you need to make to pay off the loan. You even save tens of thousands of dollars in interest accumulations.

Join a Bi-Weekly Payment Program

This option has been touted as a special program that one needs to sign up for and pay an application fee. It can just as easily be done without signing up if you don’t have prepayment penalties on your loan, but the banks make it more convenient. The idea is the same as paying down principle. By making ½ the payment two weeks in advance, you are essentially paying off the principal quicker. The same can be true by making one extra mortgage payment on principal a year.

There are a number of different strategies to build equity quickly. Mostly, it is for people who have already paid down bad debt like credit cards and who are looking to pump up their assets or own their homes outright. It can be useful for people who are trying to build assets while paying down debt, if it is like a bi-weekly program. However, you would have to check with your bank to see that a biweekly payment would be accepted and credited on the date they receive it. Some wait until the end of the month when the second payment comes in and then you don’t gain anything by prepaying.

When you are looking for ways to add value to your portfolio, remember to pay down all your high interest debts first. Credit cards, payday loans, and even car loans should be paid first before attempting to increase equity. However, once these items are taken care of, building equity can be one way to build a solid foundation under your foot for you and your children.