1. What is Home Equity?

Home equity represents the portion of your property that you truly "own." It's the difference between your home's current market value and the outstanding balance of all liens (like your mortgage) on the property.

2. How Home Equity is Calculated

The home equity formula is simple:

Where:

• Property Value — Current market value of your home
• Mortgage Balance — Remaining amount owed on your mortgage

Example: If your home is worth $300,000 and you owe $200,000 on your mortgage, your equity is $100,000.

3. Importance of Home Equity

Details: Home equity is important because it represents your financial stake in your home. It can be used for home improvements, debt consolidation, or other financial needs through home equity loans or lines of credit.

4. Using the Calculator

Tips: Enter your home's current market value and remaining mortgage balance in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Can home equity be negative?
A: Yes, if you owe more on your mortgage than your home is worth (called being "underwater" on your mortgage).

Q2: How often should I calculate my home equity?
A: It's good to check annually or when considering major financial decisions involving your home.

Q3: Does home equity include my down payment?
A: Yes, your initial down payment contributes to your starting equity, and payments toward your principal increase it over time.

Q4: How can I increase my home equity?
A: By paying down your mortgage principal and through property value appreciation (market increases or home improvements).

Q5: Is home equity the same as cash?
A: No, it's not liquid cash. To access it, you'd need to sell your home or borrow against it (HELOC or home equity loan).