While homeownership may seem to come hand-in-hand with a mountain of debt, establishing a large amount of equity in your home loan is one simple way to secure your financial future. In essence, equity is the difference between your home’s value and how much you owe your mortgage lender. Not only does building your home’s equity leave you with a significant asset, but it also enables you to utilise the funds as you see fit. Whether you elect to purchase an investment property via a mortgage refinance or receive cash after you sell your home, building equity is one easy way to decrease your debt. Depending on your financial circumstances and goals, you can take an active or passive approach to home equity. To help you on your economic journey we’ve compiled our best tips for establishing equity quickly…
Make bigger repayments
Given that your equity increases with every repayment you make, the easiest way to make a sizeable dent in your loan is to increase your repayment amount. Adding a few extra dollars to your scheduled repayments comes with the extra benefit of reducing the term of your loan and saving the amount of interest you pay.
Increase your home’s value
Although it takes time for the value of your property to increase, there are a number of profitable additions you can make to boost your home’s capital gains. Renovations are key here: whether they be upgrades to the kitchen or bathroom or the extension of your home. Take some time to consider your budget and which improvements will provide the greatest long-term value to your property. Remember, renovations cost money upfront, so you need to be confident you can more than recoup the expenses.
Make additional lump sum payments
If you have spare funds available, putting it towards your home loan will easily build up your home equity faster. In the early stages of your home loan especially, this can be a great way to reduce your principal and enjoy lower interest rates in the future. However, if your home is bound to a fixed interest rate, consider speaking with your lender prior to making any additional repayments, as extra fees can sometimes be incurred.
Choose shorter loan terms
It stands to reason that shorter loan terms lead to reduced debt and increased equity a great deal quicker than long-term loans. If your primary aim is to build equity then opting for the former choice is definitely the smarter option. The lower interest rates that accompany short-term loans also means you’ll easily save more money.
Leave it alone
While it may seem like a good decision at the time, second mortgages and refinancing can significantly slow your debt reduction process. If refinancing allows you to save a heap then don’t hesitate to go ahead, just remember that in the early years of your loan you’re largely paying interest. Each time you choose to start afresh, you stall – or at least delay – the process of building up your home equity.
Whatever you are looking for in a new home, make sure to speak to our independent consultants. They are here to help you 7 days a week and assist you with all of your queries regarding the new home building process or even investment opportunities. Call them on 1800 184 284, or book a call online.