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Home Equity Equation:
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Home equity represents the portion of your home that you truly own. It's the difference between your home's current market value and the outstanding balance on your mortgage. Home equity increases as you pay down your mortgage and as your property value appreciates.
The calculator uses the home equity equation:
Where:
Explanation: This simple calculation shows how much of your home you actually own versus how much you still owe to the lender.
Details: Knowing your home equity is crucial for financial planning, qualifying for home equity loans or lines of credit, refinancing decisions, and understanding your net worth. It helps determine how much borrowing power you have against your property.
Tips: Enter your home's current market value and your remaining mortgage balance. Use realistic market valuations for accurate results. Both values must be positive numbers.
Q1: What is considered good home equity?
A: Generally, having at least 20% equity is considered good as it helps avoid private mortgage insurance and provides better loan terms.
Q2: How can I increase my home equity?
A: You can increase equity by making mortgage payments, making home improvements that increase property value, or through natural market appreciation.
Q3: What is negative equity?
A: Negative equity occurs when your mortgage balance exceeds your home's value. This is also known as being "underwater" on your mortgage.
Q4: Can I borrow against my home equity?
A: Yes, through home equity loans or home equity lines of credit (HELOCs), but lenders typically require you to maintain at least 15-20% equity after borrowing.
Q5: How often should I calculate my home equity?
A: It's good practice to recalculate annually or when considering major financial decisions like refinancing or home equity borrowing.