Owning a home is a common goal for many people, and for good reason. Property is an asset that increases in value over time, so once you’ve got yourself on the ladder, you have made an investment in your future.
If you’ve been paying off your mortgage for some time now, you might be wondering how much equity you’ve accumulated. Use this handy guide to find out how much home equity you have.
What is home equity?
Home equity is the value of your ownership stake in your home, which can be calculated by subtracting your outstanding mortgage from the property’s market value.
In simple terms, equity is the portion of your home that you truly own – the part of your property that isn't financed by your mortgage lender. As you pay down your mortgage over time or if your home's value appreciates, your home equity generally increases.
What is my home worth?
A home’s market value can fluctuate. In a strong economy, its value tends to climb, especially if the property is in a sought-after location such as a school catchment area.
It’s important not to rely on guesswork when it comes to the value of your home. Seek out an expert with experience in the local property market for an accurate valuation which is reflective of the current market, and everything that your home has to offer today’s buyers.
Related: Is my house ready to sell?
Why calculate your home equity?
Financial planning
Knowing your home equity can help you make informed financial decisions. It's a key factor in assessing your overall net worth and can be used in budgeting for your future.
Home improvement
Home equity can be a valuable resource for financing home improvements or renovations, increasing your property's value.
Related: Should I move or improve?
Remortgaging
If you're considering refinancing your mortgage, having an accurate estimate of your home equity is essential, as it can affect your loan-to-value ratio and the terms of your new mortgage.
Find out which mortgage is right for you
Selling your home
When selling your property, understanding your home equity is crucial for setting an appropriate asking price and determining how much money you'll walk away with after paying off your mortgage.
How to work out your home equity
Find out your home’s current market value
Start by getting an estimate of your home's current market value. You can do this by consulting an estate agent, or using an online valuation tool.
Start your free online valuation
Find your mortgage balance
Contact your mortgage lender to find out your outstanding mortgage balance. This amount represents how much you owe on your home.
Subtract your mortgage balance
Subtract your mortgage balance from your home's market value to find your home equity.
Home equity = current market value - mortgage balance
Example: If your home's current market value is £300,000, and you owe £150,000 on your mortgage, your home equity would be £150,000.
For more equity release advice, contact your local Ellis & Co branch today.
