Every business has its own set of buzzwords and one of the buzzwords often used in the real estate business is the term, equity. Simply stated, equity is the difference between the value of the property and the amount of the mortgage balance still owed by the owner. If, as an example, the house is worth $400,000 and the balance on the mortgage is $280,000, the amount of equity is $120,000. This means that $120,000 of the property’s value belongs to the owner. In another perspective, they have 30 percent equity.
How can you increase your equity in a property? Here are a few ideas:
Buy It Right!
Some houses are perfect for repairs and decorating that could enhance their value without a major additional investment other than the original purchase price and closing cost. A little hard work and good taste can turn the “ugly duckling” into the pride of the neighborhood. This approach to increasing equity can often be accomplished rather quickly.
Principal Prepayments
Many homeowners pay more each month than their lender requires. Without a prepayment penalty, anything paid over and above your scheduled mortgage directly reduces the total mortgage balance and consequently reduces the ultimate term of the loan. This reduction in the principal balance allows more dollars that would normally go to paying interest, to use against the principal which again, reduces the amount owed even more rapidly.
Make Improvements
Some well-planned improvements to the house can more than pay for themselves if they are appropriate to the house and the area. The improvements that typically have the highest return are additional bathrooms, bedrooms and kitchen modernization.
Advice: Call upon your Realtor to help you make these decisions. Their experience and vested interest in your success can be invaluable to you.
