For homeowners, here’s the simplest way to explain home equity:
Home equity is the money you get from selling your home at market value after paying off your mortgage.
Sound good so far? Let’s go over all the details to get you in the know about the coolest thing that comes along with owning property.
If you’re curious about just how much home equity you have, it’s really easy to find out. You’ll need to know two things:
When you subtract the amount you owe from your home’s market value, you get your home equity.
Here’s an example: Say your home has a market value of $400,000. The remaining balance of your mortgage loan is $287,000. By subtracting $287,000 from $400,000, we’re left with $113,000, which is the amount of home equity. So if you were to sell your home and pay off the remaining balance of your mortgage, you’d have $113,000.
As you can see, home equity is something you definitely want to have—and you want to see it increase every single year you’re in your home so that when you eventually go to sell, you’ll have as much money in your pocket at closing as possible.
As a homeowner, you never want to be in a nightmare situation where you have no equity on your property—or worse, where the remaining balance of your mortgage is greater than the market value of your property, which is known as negative equity and is sometimes called being “upside-down.”
Knowing how much equity you have can help you plan for big financial decisions down the line, so it’s smart to check on it every so often. For example, it’d be really useful to know how much money you’d have for a down payment on a new house, for paying your kid’s college tuition, or for finally taking that dream vacation.