Equity
is the part of the property that is actually owned by the homeowner.
For instance if you bought a house for $100,000 several years ago and you've
paid the mortgage down to $50,000, you have $50,000 equity in that house.
Plus, if that same house is now valued at $150,000 you now have another $50,000
in equity. Or, if the house was bought only a few years ago and therefore
hasn't been significantly reduced, but the value of the house has increased
by $50,000, there is $50,000 in equity (or value).
Because Americans have become so transitional, many people
increase their equity by having the value of their property increase rather
than reducing their mortgage significantly.
The following are ways to increase equity other than appreciation
(increase in value) of a property:
Make extra principal payments each month, or as often as possible, to decrease the amount of the mortgage. The added value to this method of increasing equity is that it also reduces the interest paid on the house and, over a few years, that can be significant savings. Every dollar in principal paid is that much less interest on that dollar needed to pay!
Obtain a 15-year mortgage rather than a 30-year mortgage. Not everyone can qualify for the higher mortgage payments that a 15-year mortgage will require. But if so, equity will build faster and there will be less interest on the mortgage.
Make payments every two weeks instead of only once a month. If this is allowed by the lender, the 30-year mortgage will be paid off in about 20 years!
Make major improvements in the property that will add value to it. This gives the homeowner the added advantage of living with their improvements while still living in the house.