Building wealth through home equity

It is common for homeowners to spend their time and money on creating a home that they can live in comfortably. The fact that owning a home has investment potential is often overlooked. If you understand your property’s home equity value, you can use it to build wealth and live your very own happily ever after.

What is home equity?

It is the portion of your home’s value that you have already paid off. For example, if your home is worth R1 million and you still owe R400,000, your home equity would be equal to R600,000. It is the financial stake you have in your home and, for most homeowners, it is a substantial portion of their net worth. Home equity can be a powerful asset that you can use to build wealth and financial security.

Here are five different ways that you can build your home equity faster:

Pay extra amounts into your home loan

If you get a bonus every year, inherit money, get tax back or make extra money with part-time work, decide what percentage of that money should go into your home loan and stick to it. Even small amounts here and there can shave months or even years off the term of your loan.

Budget for a bit extra on your monthly repayments

If you add an extra amount of money to your repayments, even if it’s a small amount, it goes directly towards your principal balance. This helps you build equity faster, it reduces the amount of interest you pay and also shaves months or even years off the term of your loan.

Another strategy is to pin your monthly repayments at the same amount so that when interest rates go down, you pay extra into your bond without feeling it.

Put down a big deposit

If you are still in the process of buying a home, try to put down as much as you can on your deposit. This will reduce the loan amount and cut the amount you’ll pay on interest. It also gives you more home equity.

Renovate with return-on-investment upgrades

There are a number of renovations you can do to increase the value of your home, and in turn your home equity. Examples include implementing solar and other energy-efficient solutions, security features, a swimming pool, or renovating the kitchen and bathrooms. If you have a lot of space, a garden cottage will bring in extra income and increase the value of your home.

Don’t fall behind on regular home maintenance

With home maintenance, the saying “prevention is better than cure” applies! The longer you leave your regular maintenance, the more money you will end up spending on fixing things down the line. For example, if you don’t clear out your gutters regularly, they could get blocked and lead to a leaking roof in bad weather. Regular home maintenance also helps your home keep its market value, and that plays a part in growing your home equity.

While home equity offers many important benefits, it’s really important to think about the risks that come with borrowing against it. If you fall behind on your monthly repayments, you could lose the property. There’s also a risk that markets could fluctuate and leave you with negative equity. Negative equity is when you end up owing more on the home than it is worth. Rather only borrow what you really need – and not because the money is available.

Home equity can act as a financial buffer in times of hardship because these loans can help you cover unexpected expenses without selling your assets or taking on high-interest debt. When you use home equity wisely, it can be a powerful safety net.