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Home Equity Formula:
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Home equity represents the portion of your home that you truly own. It's calculated as 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 formula:
Where:
Explanation: This simple formula calculates the net value you own in your property after accounting for any outstanding mortgage debt.
Details: Knowing your home equity is crucial for financial planning, refinancing decisions, home equity loans, selling considerations, and understanding your overall net worth. It helps homeowners make informed decisions about their largest financial asset.
Tips: Enter your home's current market value and the remaining balance on your mortgage. Use accurate, up-to-date figures for the most precise equity calculation. Both values should be positive numbers.
Q1: What is considered good home equity?
A: Generally, having 20% or more equity is considered healthy. This avoids private mortgage insurance (PMI) and provides better borrowing options.
Q2: How often should I calculate my home equity?
A: It's recommended to calculate your home equity annually or when considering major financial decisions like refinancing or taking out a home equity loan.
Q3: Can home equity be negative?
A: Yes, if your mortgage balance exceeds your home's current value, you have negative equity (often called being "underwater" on your mortgage).
Q4: How can I increase my home equity?
A: You can increase equity by making mortgage payments, making home improvements that increase value, or through natural market appreciation.
Q5: What's the difference between home equity and home value?
A: Home value is the total market worth of your property, while home equity is the portion of that value that you actually own after subtracting mortgage debt.