6 ways to build equity in your home

Building equity in your home is more than just a financial milestone—it’s a cornerstone of long-term wealth and stability. 

Whether you’re a first-time homeowner or have owned your property for years, understanding how equity grows and the strategies to accelerate it can empower you to make smarter financial decisions.

Home equity: An overview

Home equity is the portion of your property that you truly “own,” calculated as the difference between your home’s current market value and any outstanding mortgage or liens. For example, if your home is worth $350,000 and you owe $200,000 on your mortgage, your equity is $150,000.

Key takeaways about home equity:

Equity-rich vs. underwater:

• Equity-rich means you own a significant portion of your home’s value, giving you financial flexibility.
• An underwater mortgage occurs when the loan balance exceeds your home’s current value, limiting options for refinancing or selling.

Equity as wealth:

• Home equity is a form of forced savings—every mortgage payment builds ownership.
• Rising home values naturally increase equity, contributing to net worth growth over time.

Financial flexibility:

• It can be leveraged for major life expenses, such as home renovations, education, or emergencies.
• High equity can make it easier to secure loans or lines of credit with favorable terms.

Long-term investment:

• Unlike renting, building equity means your monthly payments contribute to an appreciating asset.
• Over decades, home equity can become a substantial component of retirement planning or generational wealth.

How to build equity in your home

Here are a few ways to build home equity: 

Switch to bi-weekly payments

If you split your monthly mortgage payment in half and make a payment every two weeks, it results in 13 full mortgage payments per year, rather than 12. This bi-weekly payment system can help you accelerate your mortgage payoff without heavily affecting your monthly cash flow.  Just be sure your mortgage company doesn’t charge you extra fees for paying your mortgage this way.

Make extra mortgage payments 

Whenever you receive extra money, whether through a work bonus or a tax refund, add the additional funds to your monthly mortgage payment. Although it may not seem significant, every additional contribution toward your principal can have a big impact over time.

Even adding $50 or $100 more per month directly to your principal can shave years off your mortgage and increase equity faster.

Increase the property value

Another way to build equity? Renovating your home. The right upgrades can boost your home’s market value — though it’s worth noting that some projects tend to offer a better return on investment than others. For example, remodeling your kitchen or bathroom — or adding more usable space by finishing a basement — can provide significant ROI.

However, don’t feel like you have to spend a significant amount of money to make a positive impact on your home. For example, according to the National Association of Realtors’ Remodeling Impact Report, replacing your front door with a new steel door has a 100% return on investment.

If you’re unsure which renovations to tackle, consider connecting with a local real estate agent. The overall impact of your improvements can depend a lot on your neighborhood and what local buyers want in a home.

Bonus tip: If you use a home equity loan or a home equity line of credit to improve your home, you may be able to deduct the interest on your taxes as well.

Refinance to a shorter loan term

Refinancing your mortgage to a shorter-term loan, such as moving from a 30-year to a 15-year mortgage, can significantly accelerate your equity growth. Your monthly payments may increase, but the benefit is that more of your money will go towards the principal of your loan, rather than interest costs. It's a strategic move for homeowners who can comfortably handle higher payments and want to accelerate wealth building through their home.

Refinancing to a new mortgage only makes sense if you can get the same or a lower interest rate. Keep in mind that refinancing also comes with costs, including closing costs, so it's important to run the numbers before switching to a new one.

Keep your home well-maintained to preserve its value

Regularly maintaining your home will also preserve its value. If you have major structural concerns or expensive repairs, such as a new roof, it can reduce the value of your home — especially when it comes time for a home appraisal. 

According to a survey from American Home Shield, 87% of homeowners experienced a home maintenance issue in the last year, and 59% put off necessary repairs due to the cost. 

Remember, regular maintenance tasks like cleaning gutters every year, getting annual inspections of your HVAC and water heaters, and staying on top of cleaning can help prevent more expensive problems in the future.

Remove private mortgage insurance

If you pay for private mortgage insurance (PMI), you can typically request that your lender remove PMI payments once you reach 20% equity in your home. That can reduce your total monthly mortgage payments and improve your cash flow. It’s important to note that some lenders may require you to pay for an official home appraisal to prove you have 20% equity before they will remove PMI.

 If you don’t contact your lender and request that PMI be removed, they are required by law to remove PMI when your mortgage balance reaches 78% of your home's original price.

Frequently asked questions

How soon can you tap into the equity in your home?

It depends on the lender, but generally, lenders prefer that you have at least 20% home equity before you can tap into it. Additionally, some lenders may require you to wait six to 12 months after closing before you can apply for financing using your home equity as collateral.

How can I tap into my home equity?

Once you’ve built up equity, you can put it to work in a few different ways. A home equity line of credit (HELOC) gives you flexible access to funds when you need them, much like a credit card with lower rates. A home equity loan provides a lump sum with fixed payments, which can be useful for big projects or consolidating debt. 

A home equity investment (HEI) offers a lump sum payout without taking on monthly payments, since repayment happens when you sell or refinance. You can also leverage a cash-out refinance, which essentially replaces your current loan with a larger one and allows you to pocket the difference. Each option has its own pros and cons, but they all let you turn the ownership you’ve built in your home into a financial resource.

Do you pay taxes on equity for a home?

No, you don't have to pay taxes on your home equity. According to the IRS, when you sell a house, you don't pay capital gains taxes on what you've earned as long as you meet specific requirements. These include living in that home for at least two of the past five years and having earnings that don’t exceed $250,000 for individuals or $500,000 for married couples filing a joint return.

Is it worthwhile to make biweekly mortgage payments?

Yes, if your lender does not charge you a fee for structuring your monthly payments as bi-weekly payments, it can be worthwhile to make them. Bi-weekly payments add an additional mortgage payment every year — helping you save potentially thousands in interest.

Final thoughts

Building equity in your home is a steady, long-term process—but it’s also one of the most powerful ways to grow your wealth. From making extra payments to refinancing into a shorter loan, every step you take to increase equity strengthens your financial foundation. And once you’ve built it, you can tap into that value strategically—whether through a HELOC, home equity loan, HEI, or refinance—to fund life’s goals or provide a safety net in times of need.

‍If you want to tap into your home equity without having monthly payments, a Home Equity Investment may be a good option. You can learn more about HEIs by visiting Point.