Want to Build Equity in Your Home Quickly? Make This Move

It's an easy way to achieve that goal.

There are numerous benefits to owning a home. For one thing, there's the stability factor. When you rent, your landlord could opt to terminate your lease once it comes to an end. When you own a home, you won't be forced to vacate unless you fail to pay your mortgage or property taxes. Plus, there's something to be said about following your own house rules, as opposed to a landlord's.

Another homeownership perk? The option to use your home as a source of cash as needed. Once you build equity in your home, you can borrow against it via a home equity loan or line of credit.

But building equity in a home can take time. If you're eager to do so as quickly as possible, then it pays to be savvy when signing a mortgage.

Stick to a shorter-term loan

When you pay off a mortgage, the money you send in every month doesn't all go toward paying down your loan's principal. Rather, a good amount of that money goes toward the interest portion of your loan, which is higher during the early days of your repayment period.

If you want to build equity in your home quickly, then the more principal you pay down sooner, the easier that becomes. And that's why you may want to consider taking out a 15-year mortgage.

Borrowers commonly sign 30-year mortgages because they lend to lower monthly payments than shorter-term loans. But 15-year loans have their perks.

First, you'll generally manage to snag a lower interest rate on a 15-year mortgage than on a 30-year loan, so that alone can translate into big savings. But also, because you're not carrying a loan balance as long, the total amount of interest savings you reap in the course of paying off your home can be significant.

Meanwhile, if you take out a 15-year mortgage, you'll end up putting more money toward your loan's principal with each payment you make. And that could, in turn, make it easier to build up more equity.

Peace of mind and more

Having access to home equity is a nice thing to have financially. But it could also serve as a nice source of peace of mind.

Let's imagine rumors start flying about layoffs at your company. If you know you're sitting on $50,000 worth of home equity, you might worry less knowing that in a worst-case scenario, you could tap your home equity to scrounge up cash as needed. And so it pays to do what you can to build equity quickly.

Of course, signing a 15-year mortgage isn't your only option for building equity sooner. You can also make a larger down payment on your home in the first place.

But all told, there are different benefits you can reap by taking out a 15-year mortgage. And so if you can manage the higher monthly payments that come with one, it pays to consider paying off your home in a shorter amount of time.