Texas Lone Star Lending Video
The Wealth-Building Side of Homeownership
Home equity can become an important part of your long-term financial picture, but it does not always build quickly at first. In this Plus-5, we explain how mortgage payments, extra principal payments, recasting, and appreciation can all affect your equity over time.
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Read the transcript
Building equity is one of the big reasons homeownership can matter over time, but it’s helpful to understand how that equity actually builds.
When you make a mortgage payment, part of it goes toward interest and part goes toward reducing the loan balance. Early in a 30-year loan, the interest portion is usually much larger because interest is calculated on the current loan balance. As the balance slowly comes down, more of each payment goes toward principal.
That’s why, in the early years, most homeowners don’t build a huge amount of equity from monthly payments alone.
Some build equity faster by making extra payments directly toward principal. For example, on a $300,000, 30-year loan at 6.5%, a one-time $10,000 principal payment early in the loan could reduce total interest by more than $50,000 and pay the loan off almost three years sooner.
Some loans may also allow a recast after a large principal payment, which means the servicer recalculates the monthly payment based on the lower balance.
But for many homeowners, the biggest equity growth comes from appreciation — when the home’s value rises over time.
That equity matters because it becomes part of your financial picture. It may help fund a future move, support major repairs or improvements, or give you options later in life.
And remember — it’s always okay to ask. We’re here to help you get home.