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Building Equity Faster
Equity is an asset and an appreciating home is an
investment. While some people have resolved
themselves that a mortgage payment is a normal part
of life, others have set goals to get their home paid
for as soon as possible. There are several strategies
that will work but they all require persistent vigilance.

A shorter term mortgage such as 20, 15 or even 10
years will not only pay off sooner, it will generally
have a lower interest rate. A recent comparison at
Freddie Mac’s Primary Mortgage Market Survey
showed a 30 year fixed-rate mortgage at 4.04%
compared to a 15 year fixed-rate at 3.20%. The fees
for the shorter term were even .1% less. The shorter
term with the lower rate would have a higher payment
but some people consider it forced savings.

Additional principal contributions to any length fixed-
rate mortgage will save interest, build equity and
shorten the term of the loan. Some homeowners may
apply lump sums at various times during the year
such as when bonuses are paid or a tax refund is
received.

Other owners might increase their payment by $100,
$200 or more each month. Setting the increased
payment through electronic banking would insure
that you consistently make the extra amount.

Bi-weekly payments make 26 half-payments in a year
which equals 13 full-payments. Because of the
frequency, it reduces the interest that is due. This
might work well for borrowers who are paid every two
weeks but could present cash flow problems for
those who are paid on schedules that don’t coincide.

Making one extra payment a year will have almost the
same effect as a bi-weekly payment. The 13th
payment would be completely applied to principal.

Before embarking on one of these strategies, it would
be wise to verify with your lender that it complies with
their policies. Check out the  
Equity Accelerator to
see how it could affect your loan.