MORTGAGE MATTERS

2 min read

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Jun 2021

Build Your Home’s Equity Faster... And Use It to Your Advantage

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WHAT YOU'LL LEARN

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What is equity?

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How to calculate your home equity.

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How to build your home equity.

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WHAT YOU'LL LEARN

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What is equity?

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How to calculate your home equity.

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How to build your home equity.

As a homeowner, when you’re making those mortgage payments month after month, you’re building equity. But what is equity? By definition, it’s the difference between your home’s market value and what you owe on it.

To calculate your home equity, simply subtract the amount that you owe from the value of your home. So, if your home is worth $375,000 and you owe $100,000 on your mortgage, what is your equity?

$375,000 - $100,000 = $275,000 in equity!

EXPERT TIP: Knowing how much equity you have in your home helps you create meaningful financial moves.

How to build equity in your home?

There are plenty of ways to build equity in your home. But since you’re already a homeowner, you can’t make a bigger down payment (which one was way of having equity out of the gate). But have no fear, there are still plenty of ways homeowners can quickly build their equity:

Increase the value of your home

Making updates to your home is always a good idea if you have the means. Those updates will reflect on the overall value of your home. And making those investments now will help your equity when it comes time to sell.

Refi for a shorter loan term

Refinancing has a slew of benefits - lower interest rates and shorter loan terms are two of the biggest ones. Just remember that if you refi from a 30-year loan to a 15-year loan, you’ll likely have a bigger mortgage payment monthly. But the benefit is that you’re likely getting a lower rate and bonus: you’re also building that equity!

Pay more towards your mortgage monthly

While this one seems like it might not be an option for you, let’s look at your circumstances. Have you gotten a raise or promotion since you first bought your home? Did you pay your car off? Maybe one of your kids went off to college or no longer needs childcare. Rather than spending that money on other things, consider putting that that extra money towards your mortgage!

Whichever situation you might find yourself in, if you can budget a few extra dollars towards your mortgage payment each month you’d add to your equity quicker!

What’s next?

If you’re interested in a refi with a shorter loan term or even more tips to build your home equity, our mortgage bankers are ready to help!

Frequently Asked Questions

Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.

What is home equity?
Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. Equity builds over time as you pay down your mortgage balance and as your home's value increases.
How do I calculate my home equity?
To calculate your home equity, subtract the amount you owe on your mortgage from your home's current market value. If your home is worth $375,000 and your remaining mortgage balance is $100,000, your home equity is $275,000. Knowing your equity amount can help you make informed decisions about refinancing, home improvements, or other long-term financial moves.
How can I build home equity faster?
There are several ways to build home equity faster. Making home improvements that increase your property's market value adds equity without reducing your loan balance. Refinancing to a shorter loan term, such as moving from a 30-year to a 15-year mortgage, accelerates the rate at which your payments reduce the principal balance. Making extra payments toward your mortgage principal each month also builds equity more quickly. In markets with strong appreciation, rising home values in your area can increase your equity even without any changes to your loan.
Does refinancing help build home equity?
Refinancing to a shorter loan term can help you build home equity faster. When you move from a 30-year mortgage to a 15-year mortgage, a larger portion of each payment goes toward reducing your principal balance rather than paying interest, which builds equity more quickly. Keep in mind that a shorter loan term typically results in a higher monthly payment, so it’s important to make sure the new payment fits your budget. An Atlantic Bay Mortgage Banker can help you compare your options and determine whether a shorter-term refinance makes sense for your situation.
Can making extra mortgage payments build equity?
Yes. Making additional payments toward your mortgage principal reduces your loan balance faster, which increases your equity more quickly than following the standard payment schedule. Even small additional amounts applied consistently each month can make a meaningful difference over time. If you’ve received a raise, paid off a car loan, or reduced another regular expense, directing some of that freed-up cash toward your mortgage principal is one of the easiest, most straightforward ways to gain equity faster.
Do home improvements increase home equity?
Home improvements can increase your home's market value, which in turn increases your equity. Not all improvements add equal value, and the return on investment varies by project type and local market conditions. Improvements that tend to add the most value include kitchen and bathroom updates, energy efficiency upgrades, and additions that increase usable square footage. In Atlantic Bay's primary markets across Virginia, North Carolina, Florida, and Georgia, local real estate conditions affect how much a given improvement may add to your home's value, so it’s worth researching what buyers in your area are prioritizing.
How can I use my home equity?
Homeowners can use accumulated equity in several ways. A cash-out refinance allows you to replace your existing mortgage with a new, larger loan and receive the difference in cash, which can be used for home improvements, debt, or other financial goals. A home equity loan or home equity line of credit (HELOC) allows you to borrow against your equity without replacing your existing mortgage. Equity can also be accessed when you sell your home, with the proceeds after paying off the mortgage going to you. Your Atlantic Bay Mortgage Banker can help you understand which option may be the best fit for your goals and financial situation.
How much equity do I need before I can refinance or borrow against my home?
Requirements vary by loan type and lender, but most lenders generally prefer that homeowners have at least 20% equity before refinancing or accessing equity through a cash-out refinance or home equity product. Having at least 20% equity typically allows you to avoid private mortgage insurance (PMI) on a Conventional loan. Some programs may allow borrowers to access equity with less than 20%, depending on their credit profile and the loan product. An Atlantic Bay Mortgage Banker can review your current equity position and help you understand what options may be available to you.

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The views and statements expressed are deemed reliable as of the publish date indicated and may not be accurate or reliable at any future date. The views and statements provided are those of the author. Discussions regarding any financial information provided are not intended as individual recommendations and do not reflect the views or advice of Atlantic Bay Mortgage Group, L.L.C. The views expressed are subject to change at any time in response to changing circumstances in the market. *For refinances, the total finance charges may be higher over the life of the loan. Atlantic Bay Mortgage Group, L.L.C. disclaims any obligation to publicly update or revise any views expressed or information given. Loan programs may change at any time with or without notice. Information deemed reliable but not guaranteed. All loans subject to income verification, credit approval and property appraisal. Not a commitment to lend. Atlantic Bay Mortgage Group, L.L.C. NMLS #72043 (nmlsconsumeraccess.org) is an Equal Housing Lender. Located at 600 Lynnhaven Parkway Suite 100 Virginia Beach, VA 23452.