Home equity and real estate prices have risen significantly in most markets during the past year. One result, says RealtyTrac, is that owners of 9.1 million residential properties now have at least 50 percent equity.
Unfortunately, RealtyTrac also reports that 9.3 million homeowners remain at least 25 percent underwater.
But can property owners generate even more home equity?
Absolutely...homeowners can take several steps to increase their equity, an important matter which can mean more money when financing or refinancing a home.
Here are several winning strategies:
First, convert old stuff into cash.
There seems to be a natural law that the longer a home is owned, the greater the probability of accumulating stuff. Items which once held great importance now fill closets, dressers, basements and attics. They also make homes seem smaller -- and that can impact appraisals when selling or refinancing.
The solution? What you have may be of interest to someone else.
Craigslist, local newspaper classified sections, and eBay are all good places to unload unwanted goods. If the goal is simply to create more space, offering items for free or at low cost can work very well. Another option is to donate to good causes -- if you itemize your deductions, you'll be able to use your gifts to lower your tax bill. Some local charities will pick up goods from you, and others have stores where items can be dropped off.
Books and magazines can be gifted to local libraries. Also, some libraries have used book stores -- you donate your book and the library is then able to re-sell it.
Second, consider refinancing.
Mortgage rates have risen in the past month or so, but let's have a little context: Mortgage rates are not too far from the historic lows seen in 2013. Compare mortgages rates -- what you now have versus what's available. Also look at how long you intend to keep your mortgage and how much remains to be paid off when considering a refinance.
Lower rates can be used to build equity more quickly. For example, imagine that you refinance and save $150 a month. Just keep making your monthly mortgage payment at the new rate plus $150 -- in other words, keep making the payments you've been making. Such prepayments can speed loan amortization and lead to a faster equity build-up.
Third, re-examine your FHA mortgage
If you have an FHA loan and at least 20 percent equity, switch to conventional financing and lose the monthly mortgage-insurance premium (MIP). Such conversions can cut monthly costs and the money once spent for mortgage insurance premiums can be used for mortgage prepayments and faster debt reduction.
By going from FHA to conventional financing you're putting your equity to work. Equity counts for something and if you can switch to a loan product which does not require mortgage insurance there's good money to be saved.