Many homeowners are unaware that their monthly mortgage payments can help them build assets in the form of home equity. Home equity refers to the amount of your home you have as opposed to the amount you still owe. The equity you have in your home keeps growing with time as you pay off your mortgage. This increases your net worth and the value of your home, making it a powerful asset.
The equity can transform into cash whenever you wish to sell the home. You can also use Home equity while residing in your home for major expenses like remodelling, college tuition or other financial requirements. Read on to learn more about home equity and how to build it with the help of a mortgage broker in Brisbane.
What Is Home Equity?
The portion of the home you own after paying some mortgage is called home equity. If you want a hundred per cent home equity, you can pay off the mortgage and purchase your home all in cash to make it happen.
The calculation of your home equity is done by subtracting the amount of mortgage you paid off from the current value of your home. For example, the value of your home is $300,000, and the mortgage you need to pay is 100,000. In this case, the equity will be calculated by subtracting the amount you owe from your home’s worth. Therefore, this leaves you with $200,000 as your equity.
Equity is one of the crucial factors that determines the loan amount you may get approval for, as the lenders approve the loan amount based on your equity. This way, you can borrow more money by having more equity.
How To Build Equity In Your Home?
Make Big Down Payments
The moment you begin to get over with the mortgage payments with the help of a finance broker in Brisbane, you start building equity. As mentioned earlier, home equity refers to the amount of your home you own and the payments you make instead of the loan financed. This means your ownership stake will be bigger if you contribute more cash to purchasing the home.
Although you can purchase the home with smaller down payments of even 3 per cent or zero per cent, the large down payments will immediately give rise to your home equity.
However, it is ideal to sit and discuss with your mortgage broker to learn the methods to pay less interest on your home loans. This can help you make big payments and save on expenses you may require in an emergency.
Avoid Mortgage Insurance
Mortgage insurance is a burden you don’t want, along with paying your home loan with the help of a finance broker in Brisbane. You can prevent paying the (PMI) private mortgage insurance by having at least 20 per cent of the deposit for purchasing the home. Avoiding mortgage insurance payments can leave you with more funds to make payments for your mortgage loan with the help of a mortgage broker in Brisbane and grow your home equity.
Pay Closing Costs Out Of Pocket
Make payments with the help of a mortgage broker in Brisbane for closing costs immediately if you can afford it, as it will be an ideal move for you. The closing cost payments will boost your equity as making the payments for closing costs immediately means contributing more money towards the principal amount. The strategies for making upfront payments for closing costs usually apply to the mortgage payments. However, they can also be applied as you prepare to refinance your loan, as it involves a closing cost.
Increase The Property Value
The increased value of your property can contribute to the increment in equity. This means that if you improve your home, the value will increase, directly increasing your equity. However, it is essential to know that not all projects will allow you to recoup all the money you invest in home projects, as some projects may offer better or lesser return on the investment than others.
These are some ways you can increase the value of your home and build strong assets in the form of home equity. The world of finances requires well-informed decisions that can make it easier for you to purchase a property with a smooth process.
