Gaining a clear understanding of your home equity is essential for making effective financial moves about your future. The difference between your home’s current market value and the outstanding balance on your mortgage is home equity.
Calculating home equity is a big concern for most homeowners. If you are also one of them, no need to worry anymore; we’re here to help you out! In this step-by-step guide, we will help you accurately calculate your home equity. So, continue to read on…
1.Understand the Concept of Home Equity
Home equity is the portion of your home that you truly own. It can be calculated by subtracting your outstanding mortgage balance from your home’s current value.
Hence, whatever your home’s value and the amount you owe on a loan are, take advantage of a reliable home equity calculator. The formula for calculating your home’s equity with precision is mentioned below!
{Home Equity} = {Current Market Value} – {Mortgage Balance}
For your better understanding, here’s an example of calculating a home’s equity. Suppose your home is worth $300,000, and you owe $200,000 on your mortgage. Your resultant home equity is $100,000.
2.Determine Your Home’s Current Market Value
Getting an accurate estimate of your home’s current value is mandatory for homeowners, including you, too. So, consider using multiple approaches, such as:
- Hiring an expert appraiser who can conduct an in-depth valuation.
- Reaching out to a local real estate agent who can offer valuable market insights.
- Using online real estate platforms, like Zillow or Redfin, to get estimates based on recent sales of similar homes in your locality.
Through all of this, you will gain a clear idea of what your home’s current value in the real estate market is.
3.Calculate Your Remaining Mortgage Balance
Next, you need to find out the amount you still owe on your mortgage. But how? Consider reviewing your latest mortgage statement, which will list your remaining balance.
On the contrary, you have the freedom to contact your own lender or other notable ones, such as AmeriSave, for the most current figures. Do it, especially if you have made additional payments or refinanced your loan.
4.Account for Additional Liens or Loans
In case you have taken out any home equity loans or lines of credit against your property. It’s strongly advisable to add these to your calculations.
Be attentive and subtract the total of all outstanding loans against your home from your market value. Once done accurately, you will get a more precise equity figure.
5.Monitor Changes Over Time
Like home value, home equity can also fluctuate over time, thanks to a variety of significant reasons, some of which are as follows:
- market conditions,
- property improvements, or
- shifts in your mortgage balance.
So, set aside some time to reassess your home’s value and mortgage balance to gain updated insights into your equity position. Such insights and knowledge will empower you to make informed financial decisions regarding refinancing, selling, or tapping into your home’s equity.