Home equity is the portion of your home that you truly own. It represents the difference between your home's current market value and the amount you still owe on your mortgage. As you pay down your mortgage or as your home's value increases, your equity grows. Conversely, if your home's value declines, your equity can decrease.
How is Home Equity Calculated?
The calculation for home equity is straightforward. It's a simple subtraction:
Home Equity = Current Home Value - Remaining Mortgage Balance
In our calculator:
Current Home Value: This is the estimated market value of your home today. This can be determined through a professional appraisal, comparative market analysis (CMA) from a real estate agent, or by looking at recent sales of similar homes in your area.
Remaining Mortgage Balance: This is the total outstanding amount you still owe on your mortgage loan. You can find this figure on your latest mortgage statement.
Why is Home Equity Important?
Understanding your home equity is crucial for several reasons:
Financial Planning: Equity can be a significant asset. It can be leveraged through home equity loans or lines of credit (HELOCs) for major expenses like home renovations, education, debt consolidation, or unexpected emergencies.
Refinancing Decisions: Lenders often consider your loan-to-value (LTV) ratio, which is directly related to your equity, when approving refinances. Higher equity can lead to better refinancing terms.
Selling Your Home: Your equity determines the net proceeds you'll receive after paying off your mortgage and selling costs when you eventually sell your home.
Assessing Financial Health: A growing equity stake signifies positive financial progress and can contribute to your overall net worth.
Example Calculation
Let's say your home is currently valued at $400,000, and you still owe $250,000 on your mortgage. Using the home equity formula:
Home Equity = $400,000 - $250,000 = $150,000
In this scenario, you have $150,000 in home equity.
Important Considerations
Remember that the "Current Home Value" is an estimate. Market fluctuations, property condition, and local economic factors can all influence your home's actual market value. For official purposes, such as applying for a loan, a formal appraisal is usually required.
function calculateEquity() {
var currentValueInput = document.getElementById("currentHomeValue");
var remainingBalanceInput = document.getElementById("remainingMortgageBalance");
var resultDisplay = document.getElementById("result");
var currentValue = parseFloat(currentValueInput.value);
var remainingBalance = parseFloat(remainingBalanceInput.value);
if (isNaN(currentValue) || isNaN(remainingBalance)) {
resultDisplay.textContent = "Please enter valid numbers for all fields.";
resultDisplay.style.color = "#dc3545";
return;
}
if (currentValue < 0 || remainingBalance < 0) {
resultDisplay.textContent = "Values cannot be negative.";
resultDisplay.style.color = "#dc3545";
return;
}
var equity = currentValue – remainingBalance;
if (equity < 0) {
resultDisplay.textContent = "Your home's value is less than your mortgage balance (Negative Equity).";
resultDisplay.style.color = "#dc3545";
} else {
resultDisplay.textContent = "Your Home Equity: $" + equity.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 });
resultDisplay.style.color = "#28a745";
}
}