A home purchase brings together so many things under one roof: dreams, shelter, status, maybe a passport to better schools and neighborhoods. And one more thing: It gives you a forced savings account.
It does that by letting you build home equity, which is the difference between your home’s market value and what you owe on it. Your equity increases with each house payment you make. When home prices rise, your equity grows faster as your home’s value increases.
Stockpiling home equity gives many savers an exceptional feeling of satisfaction. Those forced savings also are a mighty resource to tap if you’re hit with an unexpected expense or want a boost on one of life’s milestones, like helping a kid through college or upgrading the home.
For these big life expenses, you can draw on your equity with a home equity loan or line of credit. The secret is moderation. Remember, building equity is often worthwhile, but you need to keep your financial life in balance by responsibly paying off debt, saving for retirement and being ready for emergencies.
To step on the gas and speed up the growth of equity, you’ve got two main tools: You can increase the home’s value or reduce the mortgage debt. Or both.
Here are six tips to help you build home equity: