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 total amount you owe on any loans secured by the property, such as your primary mortgage and any home equity lines of credit (HELOCs) or home equity loans.
As you pay down your mortgage principal or as your home's market value appreciates, your equity increases. Conversely, if your home's value depreciates significantly or you take out a new loan against your home, your equity can decrease.
Why is Home Equity Important?
Home Equity Loans/HELOCs: A significant amount of equity can allow you to borrow against your home for various needs, such as renovations, education, or debt consolidation.
Selling Your Home: The equity you've built is the cash you'll walk away with after paying off any outstanding mortgage balances and selling costs when you sell your home.
Financial Health: Higher equity generally indicates a stronger financial position relative to your property's value.
The Calculation:
The formula for calculating home equity is straightforward:
Home Equity = Current Home Value – (Remaining Mortgage Balance + Other Liens/Debts)
In this calculator, 'Current Home Value' is the estimated market value of your property. 'Remaining Mortgage Balance' is the principal amount still owed on your primary mortgage. 'Other Liens/Debts' includes any additional loans secured by your home, such as a second mortgage or a HELOC.
Example:
Let's say your home is currently valued at $450,000. You still owe $250,000 on your primary mortgage and have an outstanding balance of $50,000 on a home equity line of credit.
Your total debt secured by the home is $250,000 + $50,000 = $300,000.
Your estimated equity would be $450,000 (Home Value) – $300,000 (Total Debt) = $150,000.
Understanding your home equity is a crucial step in making informed financial decisions related to your property.
function calculateEquity() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var remainingMortgage = parseFloat(document.getElementById("remainingMortgage").value);
var otherLiens = parseFloat(document.getElementById("otherLiens").value);
var equityAmountElement = document.getElementById("equityAmount");
if (isNaN(homeValue) || isNaN(remainingMortgage) || isNaN(otherLiens)) {
equityAmountElement.textContent = "Please enter valid numbers.";
equityAmountElement.style.color = "#dc3545";
return;
}
if (homeValue < 0 || remainingMortgage < 0 || otherLiens < 0) {
equityAmountElement.textContent = "Values cannot be negative.";
equityAmountElement.style.color = "#dc3545";
return;
}
var totalDebt = remainingMortgage + otherLiens;
var equity = homeValue – totalDebt;
if (equity < 0) {
equity = 0; // Equity cannot be negative in this context; it means you owe more than the home is worth.
}
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0
});
equityAmountElement.textContent = formatter.format(equity);
equityAmountElement.style.color = "#28a745"; // Success Green
}