Equity is the percentage of market value that you own in your home. Your lender owns the rest, so your goal should be to pay the lender’s share (the principal) down and build your share (equity) up. You don’t need to go to extreme lengths to pay down your mortgage. Just follow these few easy tips:
1. Buy wisely. Buy as much home as you can without straining your resources, so you can occupy your home longer. Moving and closing costs eat away equity.
2. Pay a little extra. Pay a little more every month toward reducing your principal. Use bonuses or cashback on your credit cards to apply to your mortgage. Making one extra payment a year could shorten your loan payoff by as much as four years, saving you thousands of dollars in interest.
3. Pay off other debts. Don’t incur new debt. Spend less on automobiles, dinners out and other expenses. Pay off credit cards and student loans as quickly as you can, so you’ll have more money available to pay toward your mortgage.
4. Make improvements. Keeping your home repaired and updated helps you preserve equity by making the market value higher.
5. Let time work for you. Think of your home as a savings account where the money you put in can be retrieved one day – with interest. Historically, homes have increased in value as much as three per cent a year in normal markets, which is a great way to build instant equity.