How to Calculate Equity With an Amortization Table
When you make a mortgage payment, part of the money goes toward paying the interest that has accrued on the loan. The remaining portion goes to pay down the principal amount you owe. Even though the monthly payment remains the same, the portion that goes toward interest will decrease over time because you will owe less money. These amounts are shown in an amortization chart as well as the decreasing balance on the loan. As the balance decreases, the equity in your home increases. Knowing your equity is important if you wish to take out an additional loan against the value of your home.
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Instructions
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1
Make an amortization chart with four columns labeled "Monthly Payment," "Interest Paid," "Principal Paid" and "Balance."
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2
Write the amount of your monthly payment under the "Monthly Payment" column.
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3
Calculate the amount of interest accrued during the first month by multiplying the monthly interest rate of your loan by the amount you borrowed and write the result under the "Interest Paid" column. For example, if your monthly interest rate was 0.6 percent and you took out $220,000, your monthly interest payment would be $1,320.
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4
Determine the amount of the payment that goes toward the principal by subtracting the interest paid column from the monthly payment column. Write this amount in the principal paid category. For example, if your monthly payment was $1,493.33 and in the first month $1,320 went toward interest, $173.33 would go toward principal.
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5
Subtract the principal paid category from the balance of the loan. For the first month, subtract it from the amount you borrowed. In future months, you will subtract it from the balance category in the row above. For example, if $173.33 went toward the principal, you would subtract it from $220,000 to find you still owe $219,826.67.
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6
Repeat steps 2 through 5 to complete the amortization table. The table is complete when the balance equals zero.
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7
Determine how much equity you have in your home after any month in the amortization table by subtracting the balance owed from the value of the home. For example, if after the sixth month you owe $218,944.27 and your home's value equals $250,000, you have $31,055.72 in equity.
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