In simple terms, equity is explained as your home appraised value less your outstanding mortgage balance. Home equity matters, as it is one of the most significant assets for homeowners since it can be used in securing a loan.
Growing the equity of your property is an important part of homeownership because it will be a fast cash resource when an expense or emergency arises. It can also be a good source of money that can be used as a deposit when you are planning to buy a property investment in one of the major cities of Canada and looking for Vancouver homes for sale. Usually, the more you have, the more you can borrow using a home equity loan for your next home purchase. Moreover, home equity loan interest rates are low compared to other forms of borrowing.
There are ways on how you can grow your property’s equity that will help you create a relevant asset over time.
Make a big down payment
Putting down a big down payment will instantly boost your home value. Realtors recommend if you can put at least a 20 percent down payment so you will also avoid paying PMI, or private mortgage insurance. Of course, you should also consider how much cash savings you’re left with after making your down payment. Balancing your financial reserves is important for you to easily handle your regular monthly payment and other financial matters.
Get a 15-year mortgage over a 30-year mortgage
As you repay your mortgage, your equity would increase. As much as possible, it will be wise to get a shorter loan term like a 15-year mortgage, for the reason of a lower interest rate. The lower the interest rate means that more money is applied to the principal, You will be paying the interest for less time too which will save you a lot on the total interest. However, bear in mind that monthly payments are higher with a 15-year loan.
Boost your property value
You can start with smaller projects if you will pay your initial home improvements in cash. Replacing doors like the front entry door or the garage door or adding insulations can be feasible for a small budget for a start.
Making home improvements will boost the market value of your home. The amount you could sell it for in the future also goes up. A report shows that an average home renovation project provides a 60 percent return on your investment.
When renovating, it is a must to see which types of renovations get the most return and how will it contribute to your experience while living in the home.
Here’s a list of improvements that you may consider when looking to renovate:
- Curb appeal and landscaping. The aesthetic landscape and attractive look of the home’s exterior when viewed from the street can mirror what to expect to find on the other side of the front door.
- Floor makeover or repairs.
- Addition of a new bathroom or bathroom renovation.
- Kitchen remodeling
- Roof replacement or repairs or setting up solar power panels
- Internal and/or external painting
Pay more and make more regular repayments
If you have the means to pay more like using your occasional extra cash. It will be a good option to pay off your mortgage faster. An effective way to further decrease the amount of interest you are paying on your mortgage and at the same time will increase your equity is to make additional lump sum repayments.
Just make sure to first call and ask your loan servicer how it is done and if your current loan allows you to make additional lump sum repayments and most importantly making sure that the payment is applied to your mortgage principal.
Growing your home equity may take some time. Though it may fluctuate when home prices drop, however, keep in mind that depending on the location and demand, the value of your property will naturally rise.