Building Additional Equity in Property

Simply stated, the appreciation of equity in property is one of the easiest and most successful paths to wealth that is available to you. There are a number of ways to build additional equity in a property, some easier than others but all effective.

1) Higher initial down payment
2) Extra principal payments
3) Shorter mortgage term
4) Property improvements

1) Higher initial down payment

The most obvious way to build additional equity is at the first opportunity making a larger down payment at the time of purchase. This extra money is immediately "banked" in the property, making it much less tempting to spend.

2) Extra principal payments

Making extra payments of principal (or just adding money to your monthly payment designated to go to principal) has a double effect on your equity. First, every dollar you send reduces your debt by the same amount. Second, reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest. NOTE: Although most loans allow it, be certain that your lender will accept extra payments of principal.

3) Shorter mortgage term

If you are currently in a long term mortgage (such as 30 years) refinance and get a shorter term. These shorter mortgage terms mean that you will be paying down your principal much quicker and therefore gaining additional equity at a much faster rate.

4) Property improvements

When you improve the quality or size of your property, you also increase its value and thus your equity. Be aware, though, that although virtually all property improvement projects will bring some return, some are much more advantageous than others. For example, remodelling kitchens or bathrooms traditionally have brought a greater return than adding leisure amenities such as pools or whirlpools. To get the maximum equity enhancement, make certain that the kind of improvements you are looking to do will raise the value appreciably.