There are many mortgages out there that have low monthly payments. Some of these mortgages, like interest-only mortgages, mortgages with changing interest rates, and a few others, gave you a low payment up front, but it kept you from building up your equity. Here are some ways that refinancing your mortgage can help you build equity faster.
When you've lived in your home for a while, your equity is the amount of cash you have. It is the difference between how much your home is worth right now and how much you still owe on your mortgage. But mortgages that let you make small payments up front usually use your money to pay the interest and not much, if any, of the principal. But you can only build up your equity by paying down the principal.
If you want to build up your equity faster, this could give you a few options. The first choice would be to pay a lot of money all at once. Most of it would be used to figure out your grade. Most people, on the other hand, don't have the chance to do this.
Refinancing your mortgage is a second option. You could save thousands of dollars if you keep an eye on the market and apply when interest rates are low. You could save tens of thousands of dollars in interest if, on top of this, you cut the time it takes to pay back the loan by at least five years. This means that each month, more money goes toward the loan's principal.
With a fixed-rate mortgage, your payments would stay the same. You always know what they'll be, so you can plan around them with confidence. You don't need to worry about what's going on with the economy. Even better, a bigger part of your monthly payment goes toward your equity than with most other types of mortgages. By getting a fixed-rate mortgage and paying it off faster, you can increase your equity even more quickly.
Since you are thinking about refinancing, you might also want to use some of that equity to make improvements to your home. Some renovations, like adding siding, remodelling a kitchen or bathroom, or adding a room, can also make your home worth a lot more as soon as the project is done. Of course, this would also quickly increase how much equity you have. But make sure you talk to Realtors or contractors in your area to find out which renovations really add the most value. Some renovations don't change the value much.
Make sure you do some shopping around to find the best deal. There are a lot of differences between lenders' prices, fees, and interest rates. If you want to build equity quickly, you can't give away too much of your hard-earned money to lenders. Stay away from mortgages that charge you a fee if you pay off your loan early when you refinance.
