Most people need to own a home in order to get rich because it acts as an automatic savings account. Each month that you pay off your mortgage, the value of your interest in the home goes up.
Choose the right mortgage to build equity.
Every homeowner knows that equity is a beautiful word. Once you get used to paying your mortgage, you can be sure that every month you are building up a nest egg. When you add in how much the property has grown in value, your savings can grow quickly. This savings account, which is called equity, can give you the money you need to send your kids to college, handle emergencies, and retire.
It's not hard to build equity. Just pay your mortgage every month. There are more steps you can take to speed up the process. When you buy a home, these steps are all about the type of mortgage you get.
When you buy a home, especially if it's your first one, it can be a stressful time. Most people will take any mortgage loan they can get, right or wrong, so they can pay for the closing of escrow. This makes sense, but it can cost you money in the long run. If you can take a moment to step back from the chaos, you might want to think about the following options.
Most people who buy a home get a 30-year mortgage. Most people think it's the safest choice because it's the first thing that comes to mind. A 15-year mortgage, on the other hand, will cut down on the amount of interest you pay and speed up the growth of your equity. A 15-year loan is much better than one with a longer term, but only if you are sure you can make the monthly payments. If you have any doubts at all, you can also think about another option.
Putting money toward the principal before it's due is a simple and proven way to build equity. The idea is to make an extra payment each month when you can afford to. In a sense, you are using your home as a savings account. The growth in equity should be tax-free, which is an advantage over other investments. Find out from your lender if there are any fees for paying off your loan early before you take this step. No matter what, if you make two of these payments each year, your home's value will grow quickly.
If any of these ideas sound good to you, you can still use them, even if you have a mortgage. When you refinance your mortgage, you can fix mistakes you made when you were more worried about getting through escrow. Talk to a mortgage broker to find out what choices you have.
