Definition of Equity on a House Mortgage

Once you purchase a home, there will be several factors that determine the amount of equity you have. There are certain things you can do to increase your equity. Different factors can sometimes affect the amount of equity in your home. You may not be able to control every single factor.

Definition

The equity in your home is determined by the value of the home minus the mortgage balance and any liens. For example, if your home is valued at $150,000 and the mortgage balance is $90,000, the equity in your home is $60,000

Refinance

If you refinance your mortgage and take out cash to pay off debt such as credit cards, you will reduce the equity in your home.

Improvements

You can improve the value of your home by keeping up with maintenance. Home improvements such as remodeling the bathroom and room additions will help increase the value of your home, which increases the equity in your home.

Foreclosures

The condition of the real estate market can affect the value of your home and therefore your level of equity. For example, if there are a number of foreclosures taking place, the demand for housing will be down, and this will lower the value of your home and decrease the equity as well.

Principal Balance

When you make your mortgage payments, you can add an additional amount over and above the standard payment; this will go toward reducing your principal balance. Over time, you will see your balance decrease, which increases your equity.

References

• Home Buyer's Information Center: How to Build Equity in Your Home