Home ownership is one of the bigger life milestones that a family can aspire to. While it has gotten a little harder in recent years to take that first furtive step onto the property ladder, owning a home remains one of the better things you can do for long-term stability – and not just with regard to shelter. Owning a home also enables you to grow the size of your estate, as its value increases over time. But this value is only yours when it’s paid for; that is, you need equity in your own home to avail of its financial benefits. But how can you increase your equity?
Increase Mortgage Payments
The simplest way in which you might increase the equity you have in your home relates to the way you engage with your mortgage. According to your current mortgage repayments terms, you will be expected to pay a predetermined minimum amount towards your mortgage each month. Most mortgages enable you to exceed this minimum monthly payment – and the more you pay down your mortgage each month, the more of your own house you will outright own.
Doing this will also bestow an ancillary benefit to you, in the form of a reduced overall property expenditure. A large portion of the amount you pay towards your mortgage each month covers interest on the mortgage itself. However, as you pay your mortgage, the monetary impact of interest applied slowly starts to plateau – meaning that you pay much more towards the property at the end of your mortgage than you do at the start.
Remortgage Your Home
There is another way by which you can build equity via mortgages – this time, though, by renegotiating the terms of your mortgage. Mortgage agreements ‘bake in’ the economic conditions in which they were created, which can allow mortgage-holders to benefit from low fixed interest rates even as bank rates climb. When the fixed term of a mortgage ends, though, the mortgage defaults to a variable rate; at present, high interest rates mean variable rates vastly exceed many ongoing fixed rates.
Remortgaging may allow you to find a mortgage with a lower rate of interest. With a property of appreciated value, your loan-to-value ratio is more favourable too. You could realise this increased value through equity release, or remortgage for lower monthly payments.
Invest in Home Improvements
While mortgage management is a key route to building – and, as acknowledged, accessing – equity in your home, it is not the only way. Indeed, there is a much more common and tangible route to equity building which can provide additional quality-of-life benefits to you in the process: renovating your home.
Renovating your home is, effectively, investing in its quality. Whether basic undertakings like a new lick of paint, or considerable upgrades relating to central heating or kitchen outfitting, the improvements you make to your property can translate to inflated market value. Naturally, some investments make more of a difference than others; for instance, extending your home gives you the potential increase to your property’s value, at the expense of increased construction costs.
