How to Calculate My Debt to Equity for a Refinance
One of the ratios that lenders look at when evaluating your application to refinance your home is the percent of available equity you have in your home. The more equity you have, the safer the refinance is for the lender because the debt will be fully secured by the home, even if its value drops. To calculate the amount of equity in your home, you need to compare the debt you owe to the value of your home.
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Instructions
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Gather your most recent statement for each of your current loans secured by your home. These include your mortgage and any home equity loans or lines of credit you have on the house.
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Add up the total you owe on all of your loans. For example, if the balance on your mortgage is $161,239 and the balance on your home equity loan is $9,214, your total debt is $170,453.
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Hire a professional appraiser to determine the fair market value of your home. If you would prefer a less expensive method, contact your real estate agent for an estimate of your home's current market value. You also can look up the prices of homes like yours that have recently sold in the neighborhood to guess at how much you could get for your home.
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Subtract the total debt from your home's value to determine how much equity you have. For example, if your home is worth $240,000, subtract the $170,453 you owe to calculate that you have $69,547 in equity.
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Divide the amount of equity by the total value of the home to calculate the percentage of your home that is equity. In this case, $69,547 divided by $240,000 is 0.29, meaning that you have 29 percent equity.
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Tips & Warnings
If you have less than 20 percent equity, you will need private mortgage insurance with your refinance.
If you have a lot more than 20 percent equity, you can consider a cash-out refinance to borrow some of the equity and use it for any purpose you would like.
