How Much Equity Is in My Home?

You’ll build equity organically as you make payments on your mortgage. However, you can speed up this process by paying more. You don’t have to do anything drastic, like doubling your mortgage payments. Simply allocating $100-200 extra per month toward your mortgage will help you build equity faster.  

Paying extra on your mortgage also has other benefits, especially if you intend to stay in the home indefinitely. Increasing your monthly mortgage payments will help you repay your home loan sooner. This, in turn, could save you thousands in interest over the life of the loan. 

Consider upgrading your home to add a lot of equity quickly. There are many ways to upgrade your home. One of the best is to invest in cosmetic upgrades, such as new paint and flooring. 

If you want to give your equity a major boost, consider undertaking more involved upgrades, such as remodeling your kitchen or master bathroom. You could also hire a contractor to add on to your home, thereby increasing the square footage and overall value. Investing in outdoor upgrades like a grilling area or pool can build equity, too. 

With that being said, upgrades rarely translate to a dollar-for-dollar increase in home equity. You should therefore carefully evaluate the pros and cons of any potential upgrades before investing in them. 

Refinancing to a shorter loan term is another great way to build equity in your house. For instance, you could refinance from a 30-year mortgage to a 15-year mortgage. While this would increase your monthly payments, you would build equity faster and pay off your loan sooner, thereby saving money on interest payments. 

Refinancing to a shorter loan term might also help you obtain a lower interest rate, offsetting some of the monthly increase caused by transitioning to a shorter loan term. 

A home equity line of credit, or HELOC, functions similarly to a credit card in that you can use available funds as needed. HELOCs have a revolving balance, meaning you can pay down your loan or increase the balance by borrowing additional funds. 

Let’s say you get approved for a HELOC and plan to use your home’s equity to finance a remodel. Your total available funds amount to $70,000. You don’t have to withdraw this entire sum at once. Instead, you can borrow just what you need up to the 80 LTV threshold. 

HELOCs typically have a ten-year borrowing period. You can draw funds at any point during this time, provided you’re still under the borrowing limit. 

You only have to make interest payments on your current balance during the draw period. After the ten-year window closes, a 20-year repayment period will begin, at which time you have to start paying principal and interest. 

A home equity loan is a second mortgage that allows you to make a one-time draw of funds based on your home’s equity. Your first mortgage stays intact and you will have a new additional payment on the home equity second. 

Using the example above, you could withdraw up to $70,000 or obtain a home equity loan for a lower amount as well. However, if you need additional funds in the future, you’d have to apply for another home equity loan. 

Home equity loans have fixed interest rates and repayment periods. The interest rate on a home equity loan is somewhat higher than traditional mortgage rates. 

Cash-out refinance loans allow you to refinance your current mortgage to obtain a lower interest rate and tap into your home’s equity. 

Imagine that you owe $250,000 and want to cash out $50,000. In this scenario, your new mortgage would be $300,000 plus any closing costs. $250,000 would go toward paying off the current mortgage, and the remaining balance would be paid out to you at closing. 

Cash-out refinances typically adhere to the 80% LTV limits products. They’re a great option if you want to reduce your interest rate or refinance into different loan terms (i.e., transition from a 30-year to a 15-year mortgage).