How to Calculate Equity in Property

Equity is the difference between the value of an asset and the amount of debt secured by that asset. Its most common application is in figuring out the amount of equity in your home. This calculation helps you estimate your net worth, find out how much money you would get if you were to sell your home and pay off the mortgage, or give you an idea of how much you could borrow with a home equity loan.

Instructions

Calculate Market Value

1. Look up the market value on your home as calculated on a home appraisal from the last six months, if you have one. If you do not, you can either get one or move on to estimate your home's market value.

2. Look up recent sale prices for homes in your neighborhood. You can obtain these either by searching online, contacting a real estate agent or asking your neighbors who recently sold their homes what the sale price was.

3. Compare the square footage and condition of your home to the ones that sold recently. Select the homes that are most similar to your home and average their sale prices to estimate the market value of your home, if you were to try to sell it today.

Calculate Equity

1. Look up the outstanding principal balance of your mortgage on your last statement.

2. Look up the balance on any other debts secured by your home, such as home equity loans, home equity lines of credit and home improvement loans that placed a lien on your home.

3. Subtract the amount of all debts secured by your home from your home's market value. For example, if you estimate that your home is worth $218,500 and you have a mortgage with a balance of $132,429 and a home equity loan with a balance of $6,810, your equity is $79,261.

Tips & Warnings

• Increase your home equity by paying off your mortgage more quickly with extra principal payments. These go directly toward reducing your principal balance, which in turn increases your home equity.

• Use the same procedure to calculate your equity in your vehicle, boat or other asset secured by a loan.

References

• Lending Tree: Calculating Your Home Equity
• Bankrate; What Home Equity Debt Is; August 2009