Canadian Cities Where You Can Actually Build Home Equity
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Building equity in your home increases your net worth and helps create long-term wealth. As a homeowner, you have the opportunity to leverage the increasing value of your property.
If you’re wondering how to build equity, this post will provide tips on building equity in your home and highlight some of the best cities in Canada for the average homeowner to build equity.
Key Takeaways
- Home equity is an asset that represents the value of your property minus any outstanding balance you owe on your mortgage(s) and secured line(s) of credit.
- Building equity is essential for wealth creation and accessing more affordable credit.
- Strategies for building equity include starting with a sizable downpayment, paying down your mortgage, and adding to the increasing value of your home through home improvements.
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Why Building Equity is Important for Building Wealth
Equity is an asset of significant value that serves as a financial tool that can be leveraged to access credit and make strategic investment decisions. The more money you invest toward an asset, the more of the asset you will own.
Building equity in your home increases your overall net worth. It represents the portion of your property that you truly own, which can be used as collateral for other investments or financial endeavours.
Having equity in your home gives you the flexibility to tap into your home’s value when needed. Whether for emergencies, education expenses, or retirement planning, having equity in your home provides financial security and peace of mind.
Home equity provides access to affordable credit through various term loans or revolving credit products such as home equity loans and home equity lines of credit. These real estate secured lending (RESL) options typically offer lower interest rates compared to other loans or credit cards, making them an attractive choice for financing large expenses, renovations, or investments.
How to Build Home Equity
Building equity in your home requires a strategic approach, a long-term investment horizon, and perspective. Here are four effective strategies for building home equity:
Paying Down Your Mortgage
One of the most straightforward ways to build equity is by paying down your mortgage. Each mortgage payment you make reduces the principal balance owed, increasing your equity.
Over time, as you continue making payments, a larger portion of each payment goes towards reducing the principal. Additionally, you can accelerate the equity-building process by making prepayments toward your mortgage principal.
Paying down your mortgage increases your equity and saves you money on the interest-carrying costs over your mortgage term. Prepayments can also save you significant time on your amortization.
Make a Sizable Downpayment on Your Home
Starting with a sizable downpayment when purchasing a home is an effective way to build equity from the start. A larger downpayment means you borrow less, resulting in a lower mortgage balance and higher initial equity.
For example, if you make a 20% downpayment, you start with 20% equity in your home. This initial equity provides a solid foundation for building further equity over time.
Let the Rising Market Value Increase Your Equity
In a rising real estate market, your home’s value can appreciate over time, increasing your equity. This can happen for many reasons, such as increased demand for housing, changes in the local economy, or when your property or neighbourhood becomes more desirable.
You can build equity without additional effort by holding onto your property and allowing market forces to work in your favour. However, it’s important to note that market fluctuations can cause home values to decline, reducing equity. Declines have typically been short-lived when looking at historical home price trends.
Add Value to Your Home Through Renovations and Additions
Another way to build equity is by adding value to your home through renovations and additions. Investing in home improvements can increase your property’s market value, boosting your equity.
Renovations can range from small-scale upgrades like kitchen remodelling to larger projects like adding an extra room or expanding living space. The key is focusing on renovations with a high return on investment (ROI) that will appeal to potential buyers.
Where in Canada Can the Average Canadian Build Equity
While building equity is possible in any market, some cities in Canada offer better opportunities for equity growth for the average Canadian. These cities have shown promising growth potential and affordability, making them attractive options for homeowners looking to build equity.
We selected the cities below for their low average home prices (sourced from CREA) and options for families. However, there are many other affordable cities in Canada that may be more suitable for your lifestyle.
It’s important to note that home value appreciation will also contribute to equity growth alongside your downpayment and principal portion of payments made on your mortgage. If property values increase over your mortgage term, this only adds to the equity potential in your home.
As we cannot predict where home prices may head in the future, any equity gains would be in addition to the figures below.
1. Fredericton, New Brunswick
Average home price: $288,000
Percent lower than the national average: 56% lower
Equity built with 20% down: $57,600
Equity built with 30% down: $86,400
Equity built on a 5-year term: $82,086.08*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $24,486.08 + downpayment $57,600).
2. Regina, Saskatchewan
Average home price: $308,700
Percent lower than the national average: 53% lower
Equity built with 20% down: $61,740
Equity built with 30% down: $92,610
Equity built on a 5-year term: $87,986.01*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $26,246.01 + downpayment $61,740).
3. St. John’s, Newfoundland
Average home price: $338,900
Percent lower than the national average: 48% lower
Equity built with 20% down: $67,780
Equity built with 30% down: $101,670
Equity built on a 5-year term: $96,593.65*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $28,813.65 + downpayment $67,780).
4. Trois-Rivières, Quebec
Average home price: $353,062
Percent lower than the national average: 46% lower
Equity built with 20% down: $70,612
Equity built with 30% down: $105,919
Equity built on a 5-year term: $100,629.76*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $30,017.76 + downpayment $70,612).
5. Edmonton, Alberta
Average home price: $373,400
Percent lower than the national average: 43% lower
Equity built with 20% down: $74,680
Equity built with 30% down: $112,020
Equity built on a 5-year term: $106,426.88*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $31,746.88 + downpayment $74,680).
6. North Bay, Ontario
Average home price: $394,100
Percent lower than the national average: 40% lower
Equity built with 20% down: $78,820
Equity built with 30% down: $118,230
Equity built on a 5-year term: $112,326.82*
*Based on a 5-year term at 5.64%, 20% downpayment, and 25-year amortization (total principal payments $33,506.82 + downpayment $78,820).
Frequently Asked Questions
Welcome to our Frequently Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.
How does owning a home build equity?
Equity is the difference between the value of your home and the remaining mortgage amount. When you own a home, you build equity as you pay down your mortgage and as property values appreciate. When property values appreciate, you benefit from this additional appreciation and the amount you have paid toward your mortgage.
Does my mortgage rate impact my ability to build equity?
In general, your mortgage rates will impact your ability to build equity. If you have a higher interest rate, more of your mortgage payments over the term will go toward the interest while leaving less for principal repayments, impacting the equity you are building.
Additionally, if interest rates are particularly high, this can cause home values to fall, affecting the equity you would see from price appreciation. However, if you don’t sell your property when market values are down, you won’t realize a loss on the equity you have built up.
Is too much equity bad?
If you have too much equity in one place, like your home, it can be bad if it’s not used to fund growth or create long-term value. Unused property equity opens you up to market, geographic, and currency risk. If you have a mortgage-free home, contact a mortgage expert to see how to take advantage of your equity, or you could even consider leveraging equity for the Smith Manoeuvre.
Final Thoughts
Having equity in your home allows you to leverage what you have built up over time when needed. Every homeowner has different goals; leveraging equity can help you reach them sooner. Whether it’s to use as an emergency fund, education, or retirement planning, your home’s equity provides financial security.
Reach out to nesto’s mortgage experts to find out how you can access the equity in your home today.
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