5 fast ways to build home equity — one that won't cost you a dime
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5 fast ways to build home equity — one that won't cost you a dime
Heather PettyNovember 14, 2025 at 4:06 AM
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5 ways to build equity in your home more quickly (Vertigo3d via Getty Images)
If you're like most people, buying a house is the largest purchase you'll ever make, and it eventually becomes a cornerstone of your wealth. But here's what many homeowners overlook: It’s not the home’s value that builds your net worth — it's your equity.
As you get on your feet as a homeowner or get closer to retirement, building equity in your home can make a big difference in how comfortably you’re able to live.
Equity is the gap between what your home is worth and what you owe. And while you can't control how market values rise and fall, you can take these steps to build it faster — starting with one that costs nothing extra.
1. Switch to biweekly payments
One of the simplest ways to build equity faster costs nothing to set up. Simply divide your monthly mortgage payment in half and pay that amount every two weeks, instead of once a month.
Paying biweekly is a way to sneak in an extra full payment each year while also cutting down on the interest that accrues between payments.
And it adds up quickly. Say that you buy a home for $400,000 this month with 20 percent down and a 30-year fixed mortgage at 6.75%. Your monthly mortgage payment would be about $2075:
Monthly mortgage payment
Payoff date
Interest paid over life of loan
$2,075.51
June 2055
$427,185
Now, let’s say that instead of paying $2,075 monthly, you pay $1,038 every two weeks instead:
Biweekly mortgage payment
Payoff date
Interest paid over life of loan
$1,037.76
May 2049
$325,262
For this situation, paying your mortgage every two weeks shaves some six years and more than $100,000 in interest payments off your loan.
💡 Expert tip: Check for prepayment penalties first
Before accelerating your payments, make sure your lender doesn't penalize you for paying off your mortgage early. Most conventional loans don’t include a prepayment penalty, but some do — especially if you've refinanced recently.
Look for a prepayment clause in your loan contract or monthly statement, or call your lender directly.
The good news: Lenders are legally prohibited from charging a prepayment penalty on Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) loans. So if you have government-backed financing, you're in the clear.
🔍 Read more: Fact vs. fiction: Top 7 home equity myths — debunked
2. Put extra money toward your mortgage
Paying $50 to $100 more each month can make a real difference in building your equity and reducing the interest you pay over the life of your loan. It may not sound like a lot, but you’ll be surprised how quickly those extra payments can add up.
Let’s build on our previous example: A 30-year mortgage loan fixed at 6.75% on a $400,000 home with 20 percent down.
Monthly mortgage payment
Additional payment
Payoff date
Interest paid over life of loan
$2,075.51
$0
June 2055
$427,185
Here’s how much adding $50 or $100 to your monthly mortgage payment could save you:
Monthly mortgage payment
Additional payment
Payoff date
Interest paid over life of loan
$2,075.51
$50
August 2053
$391,019
$2,075.51
$100
August 2051
$361,337
You don't need to throw every extra dollar that comes in at your mortgage. Instead, make a simple rule that works for your budget. Commit a set percentage of "extra" money — whether from side hustles, bonuses, tax refunds or gifts — to building your equity faster.
One approach is to put aside 50% of any windfall in a high-yield savings account, then apply it to your mortgage once or twice a year. That way, you're building a cushion while still accelerating your payoff, and you're earning higher interest on that money while you wait.
🔍 Read more: Trump just floated 50-year mortgages. Could they help — or hurt — buyers?
3. Refinance to a shorter term or lower rate
Refinancing your mortgage can increase your home’s equity, but only if the numbers work in your favor. Keep in mind that refinancing options come with closing costs on the new loan amount, which you’ll need to weigh against any gain in equity.
Shorten your loan term. Refinancing from 30 years to a 20-year or 15-year mortgage increases your monthly payment but cuts the amount of interest you pay over the life of your loan, building your equity faster.
Reduce your interest rate. If you can get a lower interest rate and keep up your current monthly payments, you can keep paying your current monthly amount — with the difference going straight to your principal,
Make a cash-in refinance. Get a large bonus or inheritance? Use it to pay down a large sum on your principal, which might get you a lower rate, eliminate private mortgage insurance (PMI) and instantly boost your equity.
You don’t have to refinance to pay a lump sum against your principal. But before you send a large sum to your bank, make sure to confirm the total amount can be directed toward your principal.
🔍 Read more: When it's worth it to refinance your mortgage (and when it's not)
4. Drop your private mortgage insurance
As soon as your mortgage’s principal balance falls under 80% of your home’s value, it’s time to ask your lender to cancel your private mortgage insurance (PMI).
PMI is insurance that protects your mortgage lender from loss if you default on your loan or aren’t able to repay what you borrow. Once you’ve built at least 20% equity in your home, you can request your lender to remove your PMI responsibility as long as you’re current on your payments, have no open home equity loans and put your request in writing.
If you don’t request the removal of PMI, your lender or servicer will automatically drop it when your loan-to-value ratio reaches 78%, thanks to the Homeowners Protection Act of 1998.
🔍 Read more: How to recession-proof your home right now: Expert tips for homeowners
5. Renovate to increase your home’s value
It makes sense that spending money on your home will increase its value, but not all home improvements or upgrades add significantly to your equity. And how the market values your renovations can also change year to year. So, before you drop the cash to remodel or build, make sure you know how much of a difference your changes will make.
The biggest boosts come from curb appeal, according to Remodeling magazine’s Cost vs. Value data, from replacing your garage and entry doors to installing stone veneer. Replacing your siding and adding a wood deck can be pricier projects, but your return on investment is expected to be more than 80% for each. (And you just might qualify for lower insurance premiums too.)
🔍 Read more: Top home renovations to increase your property's value — and quality of life
New homeowner? Start with these 4 tips
If you’re just getting ready to buy your first home or purchase a new home in retirement, here are ways to set yourself up for building equity in your new home.
Make the largest down payment you can. A larger down payment is instant equity, yet it can also reduce your interest rate and keep you from having to pay PMI.
Get rid of your PMI as soon as possible. If you do get saddled with an extra PMI payment each month, make a plan to get your equity up to the required limit for your PMI to drop off. And check with your lender to make sure you know exactly what’s required.
Pay your closing costs out of pocket. It may be tempting to finance your closing costs, but paying them up front increases your equity and reduces the amount you’ll pay in interest.
Wait for a lower interest rate. You don’t want to wait too long, because every year you’re renting instead of paying on a mortgage is equity lost. But if signs point to lower mortgage rates on the horizon, it could be worth saving more toward your down payment until borrowing costs come down.
🔍 Read more: Here’s how much a 1% change in loan rates actually matters
Why building equity matters
Home equity represents real wealth — the part of your home you actually own. While you can't spend it like a checking account, your home equity can be a healthy financial cushion and a strategic tool throughout homeownership and retirement.
You may never need the money from your home equity in your retirement, but knowing it’s there as silent savings can help relieve some of the stress in an emergency or provide flexibility when you need it to:
Downsize your home and invest your remaining equity in retirement accounts
Consolidate high-interest debt, update your home or purchase an investment property
Generate retirement income using a reverse mortgage to cover medical needs, monthly expenses or unexpected emergencies
Sell off your house and use the profit to transition to assisted living or long-term care
Leave an inheritance to your beneficiaries as part of your estate
🔍 Read more: Why did Jay-Z and Beyoncé take out a $57M mortgage? (Yes, there's a lesson in it for you)
Should you borrow against your home equity?
You’ve built up your equity for a reason — but tapping it means weighing the real benefits against serious risks if you're unable to repay what you borrow.
Key advantages of borrowing against your equity:
Lower costs than refinancing — typically fewer costs and faster closing than a full mortgage refinance.
Waived closing costs, if you keep your account open more than three years
Lower interest rates than credit cards or unsecured personal loans.
Flexible options — such as fixed repayments with a home equity loan or interest-only payments during a HELOC's draw period.
Against these advantages is a clear and serious drawback: Because your loan is secured by your home, if you default on payments or are unable to repay what you borrow, you put your home at risk of foreclosure.
Depending on the way in which you borrow against your home, you may pay closing costs and annual fees. And if you pay off your loan or close your line of credit within the first three years, you might be responsible for any waived closing costs.
🔍 Read more: 4 ways to get equity out of your home — and what to know before you apply
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FAQs: Your home equity and retirement savings
Learn more about home equity — and how to use it — with answers to these common questions. And explore more in our growing library of personal finance guides that can help you save money, earn money and grow your wealth.
Is home equity the same as your home's value?
No. Your home equity is based on your home value, but it's actually the difference between the appraised value of your home — or what your home is worth — and how much you owe on your mortgage. Learn more about this and other common home equity misconceptions in our roundup of common home equity myths.
Do I need an appraisal for a home equity loan?
While many home equity loans require an appraisal to determine your home’s current value, if you’ve recently bought your home and have excellent credit, you might be able to find a lender that offers no-appraisal home equity loans. These loans use digital tools and hybrid models that assess your home’s features and recently sold homes in your neighborhood, among other factors, to determine your home’s value. Start with specialty digital lenders like Figure or LoanDepot. And learn how they work and what to expect in our guide to no-appraisal home loans.
Can I qualify for homebuyer assistance if I’ve already owned a home?
Just because you've already owned a home doesn't mean you'll be denied assistance. Many homebuyer assistance programs are for first-time buyers, but they tend to use a liberal definition of "first time." And there are a surprising number of options for senior buyers and retirees, for people who've purchased a home before or even people who need help paying off their current home. Learn more about how these programs work and whether you qualify in our comprehensive guide to homebuyer assistance programs.
What happens to your mortgage after you die?
Your home's mortgage is treated a little differently from your other debt, which is typically settled through your estate before any assets are passed along to your heirs. Most mortgages aren’t transferable, which means the home must be paid off in full to transfer the property title.
But that also means only those who signed on to the loan can be held liable for a mortgage. Learn more about what happens to your mortgage after death.
Can I use a home loan to pay down high-interest debt?
Yes. Typical interest rates on home equity loans are lower than those of the average credit card and personal loan, and tapping into your home's value to pay off high-interest debt could significantly lower the interest amount you'll pay on these separate debts. But there's a lot at stake if you aren't able to repay your home equity loan on time, including the potential loss of your home to foreclosure. Make sure any new loan you take on offers enough wiggle room in your budget for emergencies and unexpected expenses.
I own a home. Can I use home equity to invest in a rental or investment property?
You can use a home equity loan to buy a rental or investment property, but that doesn’t mean you should. Among the two most popular ways to tap into your home’s equity are home equity loans and home equity lines of credits. Both types of loans are ways to borrow from the money you’ve already paid into your home, based on your home’s appraised value. And there are no restrictions as to how you can use the money you borrow with a home equity loan. Learn more about the benefits and risks of tapping your home equity for a second home or investment.
About the writer
Heather Petty is a finance writer who specializes in consumer and business banking, personal and home lending, debt management and saving money. After falling victim to a disreputable mortgage broker when buying her first home, Heather set on a mission to help people avoid similar experiences when managing their own finances. Her expertise and analysis has been featured on MSN, Nasdaq, Credit.com and Finder, among other financial publications. When she's not breaking down the complexities of finance, she's a young adult mystery writer of an internationally acclaimed series — and counting.
Article edited by Kelly Suzan Waggoner
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Source: “AOL Money”
