Building equity in your home isn’t just a smart financial move—it’s essential for long-term wealth and flexibility. Whether you’re planning to refinance, invest, or simply increase your net worth, understanding how to grow your equity puts you in control of your financial future.
In this guide, we’ll walk you through 8 practical tips to build home equity faster. From smart payment strategies to high-ROI home improvements, these tips will help you make the most of your mortgage—and unlock the value of your home.
What Is Home Equity, and Why Does It Matter?
Home equity is the difference between what your home is worth and how much you still owe on your mortgage. It grows when your home increases in value or when you pay down the principal on your loan.
Example: If your home is valued at $400,000 and your mortgage balance is $280,000, your home equity is $120,000.
Equity is more than just a number—it’s a tool. It can help you refinance into better terms, access cash through a home equity loan or line of credit, or boost your resale profit when you decide to sell.
According to the Federal Reserve, U.S. homeowners collectively hold more than $30 trillion in home equity. That’s a lot of untapped potential—especially for those who know how to grow and use it wisely.
Why Building Equity Should Be a Priority
For most homeowners, equity is the single largest source of personal wealth. Here’s why building it matters:
- Refinance with better terms: More equity often qualifies you for lower rates or better loan programs.
- Tap into home equity loans or HELOCs: Fund renovations, pay off debt, or invest in education.
- Increase net worth: As you reduce liabilities and increase your property’s value, your wealth grows.
- Improve financial security: In emergencies, equity can serve as a financial safety net.
- Generate profit when selling: More equity = more cash at closing.
8 Smart, Actionable Tips to Build Home Equity
Here’s how to build equity in your home whether you’re just starting out or looking to accelerate your progress.
1. Make a Larger Down Payment
When buying a home, a bigger down payment equals instant equity. Putting down 20% or more not only builds equity but helps you avoid private mortgage insurance (PMI), which can save you hundreds of dollars a month.
Pro Tip: If you already own your home and didn’t put down 20%, set a target to reach that threshold so you can eliminate PMI early.
2. Refinance to a Shorter Loan Term
Switching from a 30-year mortgage to a 15-year or 20-year term means higher monthly payments—but significantly more equity, faster. You’ll also pay less interest overall, saving thousands over the life of your loan.
Voice search friendly: “Is refinancing to a shorter term a good way to build equity?”
Yes! Shorter terms mean quicker principal reduction and faster equity growth.
3. Make Extra Principal Payments
Adding just one extra payment per year—or even rounding up your monthly payment—directly reduces your loan principal. That accelerates the payoff timeline and builds equity faster.
Example: On a $300,000 loan at 6.5% interest, one extra payment per year can knock 4 years off your loan and save over $40,000 in interest.
4. Set Up Biweekly Mortgage Payments
Biweekly payments result in 26 half-payments per year—equivalent to 13 full payments instead of 12. That one extra payment per year adds up fast and helps you chip away at the principal more efficiently.
- Voice search: “How does paying biweekly affect my mortgage equity?”
- It builds equity faster and reduces the interest you pay long-term.
5. Eliminate Private Mortgage Insurance (PMI)
If you put down less than 20%, you’re likely paying PMI. Once you reach 20% equity, contact your lender to cancel it. That monthly savings can go directly toward building more equity.
Pro Tip: Don’t wait for automatic cancellation—initiate the process yourself and submit a home appraisal if needed.
6. Invest in High-ROI Home Improvements
Strategic upgrades can significantly increase your home’s market value, which boosts your equity.
Top improvements that offer great return on investment (ROI):
- Kitchen remodel
- Bathroom renovation
- Energy-efficient windows or HVAC systems
- Curb appeal (landscaping, front door, lighting)
- Roof or siding replacement
- Outdoor living additions (deck, patio)
Don’t forget: If you use a home equity loan to fund improvements, the interest may be tax deductible (consult a tax advisor).
7. Stay Put and Let Appreciation Work
Real estate markets rise over time. If you’re in a high-demand area, your home’s value may increase even if you make no changes—giving you passive equity growth.
Example: A home that appreciates 5% annually increases $25,000 in value on a $500,000 home. That’s instant equity—no renovations needed.
8. Borrow Strategically Against Your Equity
When you tap into your home equity through a cash-out refinance, home equity loan, or HELOC, use the funds to increase your overall wealth—not decrease it.
Best uses for borrowed equity:
- Paying off high-interest debt
- Funding a degree or certification
- Starting or expanding a business
- Investing in real estate
Avoid using equity for non-essential spending like vacations or depreciating assets.
FAQs
What’s the fastest way to build equity in a home?
Make extra payments, refinance to a shorter loan term, and invest in home improvements that increase value.
How does a cash-out refinance work?
You replace your existing mortgage with a new, larger one and take the difference in cash—using your equity as collateral.
Is it better to refinance or get a home equity loan?
Refinancing replaces your entire mortgage; a home equity loan is a second loan based on your equity. It depends on your goal—lowering interest vs. accessing funds.
Can I lose my home if I borrow against the equity?
Yes. Defaulting on a home equity loan or HELOC can lead to foreclosure, so only borrow what you can repay.
How much equity do I need to refinance?
Typically, at least 20% equity is needed to avoid PMI and qualify for the best terms.
Final Thoughts: Building Equity = Building Wealth
Home equity is more than just a number—it’s your financial foundation. By paying down your mortgage, making smart upgrades, and monitoring market trends, you can turn your home into one of your strongest assets.
Ready to make your equity work for you? Whether you want to refinance, consolidate debt, or invest in your future, talk to a trusted mortgage advisor to explore your best next steps.
