If you are a homeowner and want to do all you can to build equity, this information will help. Typically, you have three main options, which include making home improvements, through natural appreciation, and by paying down the amount of the mortgage principal. As the equity in your home grows, you have a nice savings that can be used to purchase a larger or better home, or eventually cashed out if you ever decide to rent.
An excellent way to start building equity is to perform home improvements. Keep in mind that home improvements of any kind are helpful but things like new plumbing or electrical system, a new roof, new windows, new carpeting of flooring, new bathroom fixtures, new kitchen cabinets, and so on are all beneficial. However, other upgrades such as adding a new fence, putting in landscaping, painting, and gutters will also help raise the equity.
With natural appreciation, the equity is build up over time. Home values go up automatically, some more than others do. For instance, if you purchased a home for $100,000, over the course of seven years, the value of that home could be anywhere from $120,000 to $150,000 depending on a number of factors. If that home were in a neighborhood where more expensive housing and amenities were being added, then the value would likely climb faster. The difference in the payoff amount and the price you could sell the home for is your equity.
Finally, you can pay more toward the loan principal, which would not just pay the loan off quicker but you would also be reducing the amount of interest paid. As the principal amount goes down, the amount of interest is adjusted to the current balance. Therefore, you end up with more equity that could be used to send a child to college, for a wedding, trip, or simply as a part of your retirement plan.