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By Lynn Donn
Special to the Financial Independence Hub
If you’ve been watching the real estate market in British Columbia, you may have noticed that quite a few Nanaimo homes for sale have a large amount of equity. Equity is the difference between the market value of your home and the mortgage balance owed. Another way of thinking about equity is that it’s the profit you make when the time comes to sell.
Building equity is the largest single benefit of owning a home in Nanaimo or anywhere else. Your home equity increases in one of two ways:
- Value of your home increases
- Amount of debt on your home decreases
Add value to your home
Here are eight great ways to build equity in your home by increasing value and decreasing debt:
You have instant equity in your home when home values appreciate. Three things that make home values rise are:
1.) Real estate market in Nanaimo is moving upward: Appreciation is something that happens without you having to do anything. Home prices are more likely to go up in established, attractive neighborhoods and in growing areas around town.
2.) Improvements and updating: Not all home improvements have the same return on investment. So, before spending money on updating, be sure to choose the ones that will add the most value to your home. Smart home improvements include kitchen and bathroom updating, improving curb appeal with low-maintenance landscaping, and adding square footage to your home.
3.) Upkeep & routine maintenance: Although routine maintenance can be tedious, it’s better to keep everything in your kept up than to face a major repair bill like a leaking roof or broken down furnace. Nanaimo homes for sale that have been maintained poorly are also at the biggest risk of losing equity, even when the real estate market is appreciating.
Decrease debt on your home
Decreasing the debt on your home while adding value can build equity surprisingly fast. Techniques to reduce mortgage debt include:
4.) Make a bigger down payment: If your budget and long-term financial goals allow for it, make a bigger down payment. Even putting 1% or 2% more down that you’d planned can make a big difference in how quickly your equity grows, because there’s a lower loan balance for interest to be charged on.
5.) Increase the amount of your monthly payment: This home equity building technique is similar to making a bigger down payment, but in smaller pieces. If your monthly mortgage payment is $1,000 try making a payment of $1,050 or $1,100. With most home loans that extra amount goes toward paying down the mortgage balance.
6.) Make extra payments: In addition to making a bigger payment each month, you can also build more equity by making the occasional extra monthly payment. For the months that you make more than one payment, the extra amount goes toward principal.
7.) Don’t mess with your existing equity: Leaving your equity alone by not taking out a second mortgage or home equity loan is another way to keep existing equity intact and keep it growing. If you can reduce your monthly mortgage payment significantly be refinancing, go for it. But remember that refinancing means you’ll have a brand new loan and you’ll be paying mostly interest during the early years of the loan. If you do refinance, avoid a cash-out refinance because you’ll end up with a bigger mortgage than what you started with.
8.) Refinance to a shorter loan term: If you do refinance, going from a 30-year mortgage to a 15-year loan can make good financial sense. Your monthly payment will be larger, but you’ll pay off your mortgage in about half the time and own your home free and clear with 100% equity!
Lynn Donn is an experienced and enthusiastic Realtor based in Nanaimo, B.C. She defines ‘full service’ as ‘going above and beyond’ for her clients.
