Growing Your Wealth Through Home Ownership

Growing Your Wealth Through Home Ownership

Your home equity is how much of your home that you "own".

For example, if you put down 20% on your home when you purchased it, that means you already have 20% of the home's value of equity in the home. As you pay the loan down over the years, your principal loan value decreases while your equity increases. To calculate your equity, take the current appraised value of your home and then subtract what you still owe on your home.

How to Calculate Your Home Equity

Every month when you make your mortgage payment, you gain equity in your home. If you make full payments on time, your equity will grow as your principal loan decreases and at the end of the term of your loan, you will own your home outright. So, if you have a 30-year mortgage, you will own your house in 30 years. Building equity is one of the major perks of being a homeowner. It makes your home a valuable asset that you can use in the future to either buy a new home or make other large purchases. Some people even use their home equity to fund their retirement. But thirty years is a long time!

If you want or need access to your money sooner, you can build your equity faster and here is how: 


By making extra mortgage payments, or paying more than you owe each month, you can decrease the amount of your principal balance and build equity faster. For example, if you make one extra mortgage payment a year, you could possibly pay off your loan ahead of schedule. Or, if you pay a little more than your required payment each month, you can also shorten the life of your loan. Say your required monthly payment is $2100. $2100 divided by 12 is $175. If you add $175 to each monthly mortgage payment, after 12 months you will have made one extra payment for the year, thus paying off your mortgage a little faster! But be careful, because some loans have prepayment penalties for paying off your loan too much ahead of schedule. So, check into that before you decide to pay more on your loan.


Extra money? Who has that? Well, you might if you get a bonus or a gift of money. Perhaps you can't afford to put extra money toward your loan every month, but things like holiday bonuses or even a tax refund or an inheritance may give you the extra cash you need to make and extra loan payment. Just be sure that your money is going toward your principal and not your interest.


There are some home improvement projects that can add significant value to your home, thus increasing the equity you have in your home. Even a small project can give you a huge return on your investment (ROI)! Top 10 Best ROI Home Improvements


Just because a 15-year mortgage is half the time of a 30-year mortgage, that does not mean that your monthly payment will double. Have the mortgage lender run the numbers to see if you can swing the payments on a 15-year loan. If so, you will not only pay the loan off faster, but you will also pay less interest over the life of the loan, thus saving even more money! 15 vs 30 Year Mortgage Calculator


While it may be tempting to take advantage of a loan that offers a low or no down payment, if you're looking to build equity quicker, it is not the best choice. A large down payment will assist you in building wealth faster. The more you put down, the more equity you begin with. If you can put at least 20% down, you get the added perk of not having to pay for PMI (Private Mortgage Insurance), which can be expensive.Building wealth through equity is a huge benefit of being a homeowner. It's like a forced savings account and can be one of the best investments you will ever make!

If you are looking to buy or sell a home in the Huntsville area, let professional Realtor Mike Manosky  help you with all your real estate needs! Give Mike a call today at 256-508-0211 and check out for more information!  

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