For many Canadians, buying a home isn’t just about finding a place to live—it’s about building wealth and securing long-term financial stability. One of the most powerful tools for creating that wealth is home equity. But what exactly is equity, and how can homeowners grow it over time?
In this article, we’ll break down what equity means, how it works, and practical ways to build it. Whether you’re buying your first home or already own property, understanding equity can help you unlock financial opportunities. If you’re just starting your homebuying journey, Homewise is here to guide you every step of the way.
1. What Is Equity?
Home equity is the portion of your home that you truly own—the difference between your home’s market value and the amount you still owe on your mortgage. As you pay down your mortgage and as your home’s value increases, your equity grows.
Example:
- If your home is worth $700,000 and your remaining mortgage balance is $400,000, you have $300,000 in equity.
It’s a bit like having a savings account hidden inside your house, one that grows quietly over time.
2. Why Is Home Equity Important?
Home equity is more than just a number on paper. It represents real wealth that you can tap into when needed. Homeowners often use their equity to:
- Fund renovations or home improvements
- Consolidate debt at lower interest rates
- Invest in additional properties
- Cover major life expenses
Think of equity as a financial safety net or a stepping stone toward further wealth-building opportunities.
💡 Ready to start building equity? Begin by getting pre-approved with Homewise and find the right mortgage for your future.
3. How Do You Build Equity in Your Home?
There are two primary ways to grow your equity:
- Paying Down Your Mortgage
- Increasing Your Home’s Value
Let’s break down each method.
a) Pay Down Your Mortgage Faster
- Make Extra Payments: Many lenders allow you to make lump sum payments directly toward your principal, reducing the amount you owe faster. Even one or two extra payments a year can significantly impact your equity over time.
- Bi-Weekly Payments: Instead of monthly payments, consider a bi-weekly schedule. This results in one extra mortgage payment each year, shaving years off your amortization period.
- Shorten Your Amortization: A shorter amortization (like 20 years instead of 25) means higher monthly payments, but you build equity faster and pay less interest overall.
b) Increase Your Home’s Value
- Renovations and Upgrades: Improvements like kitchen remodels, finished basements, and landscaping can boost the market value of your home, increasing equity.
- Market Appreciation: As home prices rise, so does your equity. While this is influenced by market conditions, choosing homes in desirable neighborhoods often leads to faster appreciation.
- Curb Appeal: Even small updates like painting, new siding, or landscaping can increase your home’s resale value.
🏠 Thinking about refinancing to fund home improvements? Apply for refinancing with Homewise to leverage your existing equity.
4. How Long Does It Take to Build Significant Equity?
Equity builds gradually, but it can accumulate faster than you think—especially if you:
- Increase your down payment at the time of purchase
- Invest in home improvements
- Buy in a growing market
On average, most Canadian homeowners begin to see significant equity growth within 5-10 years of homeownership.
5. Can You Access Your Home Equity?
Yes! Homeowners can access their equity through several methods:
- Home Equity Line of Credit (HELOC): A flexible, revolving line of credit secured by your home’s value. You can borrow as needed and repay at your own pace.
- Mortgage Refinancing: By refinancing, you can tap into your equity and secure a new loan—often at a lower interest rate.
- Second Mortgage: This involves taking out another loan secured against your home’s equity.
Each option has pros and cons, and the right choice depends on your financial goals.
Not sure which option is best for you? Let Homewise connect you with expert mortgage advisors to guide you through the process.
6. How Much Equity Do You Need to Access It?
In Canada, lenders typically allow you to borrow up to 80% of your home’s value (including your current mortgage balance). Here’s a quick example:
- Home Value: $700,000
- 80% of Home Value: $560,000
- Current Mortgage Balance: $400,000
- Accessible Equity: $160,000
This means you could access up to $160,000 through refinancing or a HELOC.
7. How Equity Supports Long-Term Wealth
Home equity is often a gateway to further investment. Many Canadians use their equity to:
- Buy rental properties
- Fund education or retirement
- Create emergency funds
By leveraging equity smartly, homeowners can continue growing their wealth beyond just their primary residence.
8. Equity and Real Estate Investing
If you’ve built significant equity in your home, it can be used to purchase additional properties—expanding your real estate portfolio. Real estate remains one of the most reliable wealth-building strategies, and equity is the key that unlocks it.
Looking to explore investment properties? Check out Homewise Real Estate for listings and expert advice on finding the right opportunities.
9. How to Maximize Your Home Equity
- Regular Maintenance: Keep your home in top condition to protect its value.
- Strategic Renovations: Focus on high-return projects like kitchens, bathrooms, and energy-efficient upgrades.
- Smart Borrowing: Only access equity for investments that will provide long-term returns.
10. Get Started with Homewise
Building home equity starts with the right mortgage. Whether you’re buying your first home, refinancing, or looking for investment opportunities, Homewise is here to help. Our simple online application connects you with over 30 lenders, ensuring you get the best rates and terms to build equity faster.
Conclusion
Home equity is a powerful tool for building wealth and securing your financial future. By understanding how it works and using strategies to grow it, homeowners can unlock significant value over time.
Ready to take the next step? Start your mortgage application or explore our real estate listings to begin building wealth through homeownership today.
