Home equity refers to the current market value of your home minus the outstanding mortgage balance. In other words, it’s the real estate asset’s current worth minus the amount still owed on any mortgage or lien. Home equity, therefore, represents the portion of the home that the owner truly owns outright, and it can be used as collateral for a loan, credit line, or other financial opportunities. Home equity can increase over time as the property’s value appreciates or as the mortgage balance is paid down.
How Can I Calculate My Home’s Equity?
You can determine your home equity by subtracting the outstanding mortgage balance from the current market value of the property.
Home Equity = Current Market Value of Property – Outstanding Mortgage Balance
For example, if a homeowner’s home is currently valued at $500,000, and they have an outstanding mortgage balance of $300,000, their home equity will be:
Home Equity = $500,000 – $300,000
Home Equity = $200,000
This means that the homeowner has $200,000 of equity in their home. Keep in mind that home equity will naturally increase as the mortgage balance decreases over time or as the property’s value increases.