What is Home Equity?
Home Equity = Current Home Value - Amount Still Owed
Home equity is the difference between what your home is worth and how much you still owe on it. In simple terms, it is the part of your home's value that is not owed to a lender.
Use this formula:
Home Equity = Current Home Value - Amount Still Owed
Current home value means the price your home might sell for today. Amount still owed means your mortgage balance, plus any other loans tied to the home. A mortgage is a loan used to buy a home.
Example: If your home is worth $350,000 and you still owe $220,000, your home equity is $130,000.
$350,000 - $220,000 = $130,000
This does not always mean you would receive $130,000 in cash if you sold the home. Selling costs, taxes, and final loan payoff amounts can reduce what you actually take home.
Home equity can change over time. It can grow when you pay down your mortgage or when your home becomes worth more. It can decrease if your home's value drops or if you borrow more against the home.
To calculate your own home equity, follow three steps:
- Estimate your home's current value.
- Add up what you still owe on your mortgage and any other home loans.
- Subtract what you owe from the home's value.
Bottom line: Home equity is what your home is worth minus what you still owe on it.