Down Payment

• When you purchase your home, the lender requires a minimum down payment. You either put down the minimum or provide a larger down payment. Every dollar of down payment raises your home's equity. Large down payments provide you with a lot of equity immediately. The home appreciates at the same pace regardless of the size of the down payment at close.
  
  

Monthly Payment

• Mortgages with long amortization periods pay little toward the principal of the loan in the first years. The first mortgage payment for a 30-year, $350,000 mortgage at 5.5 percent is $1,987.26 (not including taxes or insurance, which could require up to an additional to $500 a month depending on the home's location). Of that $1,987.26 payment, only $383.09 is applied to the principal of the loan on the first payment. The loan payment only applies $501.74 toward the principal of the mortgage after five years. It is not until the loan is 19 years old that as much as $1,000 of the monthly payment is applied to paying off the principal.
  
  

Extra Payments to Principal

• Making extra payments to principal each month can significantly reduce the number of years needed to pay off a mortgage. If an extra monthly payment of $200 is made toward the principal of the $350,000 loan, the loan would shrink from a 30-year loan to a 24-year, 2-month loan and would save more than $83,000 of interest over the life of the loan. This raises the equity significantly, because the extra $200 goes directly toward paying down the mortgage balance and increasing the equity.
  
  

Other Options

• Shorter loan-payment periods and shorter loan terms increase the equity in the home more quickly. For example, biweekly mortgage payments add an extra mortgage payment each year because 26 half-payments are made, which equal 13 whole payments instead of the 12 whole payments when payments are made on a monthly basis. Adding just one extra payment a year reduces the loan term by five to seven years. Also, a 15-year mortgage provides more equity more quickly than a 30-year mortgage, because a larger portion of the payment goes toward paying the principal.