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How much equity do you have in your home, and why is it important for you to find out?

Maybe you’re a homeowner looking to sell and want to know how much you can get for your home. Or perhaps you’re looking to borrow against your home equity to cover a big expense.

Whatever the case may be, understanding your home equity is important. But how do you calculate how much you have?

How To Calculate Your Home Equity?

Calculating your home equity is easy. All you need to know is your home’s current market value and the outstanding balance remaining on your mortgage. Once you have these figures, you can plug them into the following equation:

Home Equity = Property Value – Remaining Mortgage Balance

Calculating Your Home Equity: An Example

For example, let’s say your home is currently valued at $750,000, and you still have $300,000 left on your mortgage. In this case, you would have $450,000 in equity ($750,000 – $300,000).

Property Value$750,000
Minus Current Mortgage Balance$300,000
Home Equity$450,000

How To Find Your Home Value To Calculate Your Home Equity

You must use the most accurate figures in your calculation when determining how much equity you have in your home. That means understanding exactly what your home is worth based on current market conditions.

To find out what your home is worth, you can enlist the services of a real estate professional who can look at other similar homes in the area that have recently sold. 

Alternatively, you can have your home appraised by a professional. This may provide you with a more accurate idea of how much your home is currently worth. The appraiser will look at various factors, such as the age, size, condition, location of the home, and recently sold properties in the neighbourhood to arrive at an accurate property value.

How To Find Your Current Mortgage Balance To Calculate Your Home Equity

Lenders typically send out a mortgage statement to borrowers at least once a year that details their mortgage balance. However, to get a more up-to-date balance, you can call your bank or log in to your online bank account.  

How Much Can You Borrow Through Your Home Equity?

The amount you can borrow through your home equity will vary based on your lender and the type of loan you want. 

  • Second Mortgage – Generally, you can borrow up to 80% of your home’s appraised value, less the outstanding balance on your mortgage. 
  • Home Equity Line Of Credit (HELOC) – With HELOCs, you can usually borrow 65% to 80% of your home’s appraised value.
  • Reverse Mortgage – Borrow up to 55% of your home’s appraised value, less the outstanding balance on your mortgage.
  • Refinance – Most banks let you borrow up to 80% of your home’s appraised value, less the outstanding balance on your mortgage. 

How To Calculate How Much You Borrow Through Your Home Equity?

To illustrate how this calculation works, consider this example: 

Property Value$750,000
Minus Current Mortgage Balance$300,000
Home Equity$450,000
Amount You Can Borrow For HELOCs
(65% to 80% of your home’s appraised value)
$600,000
($750,000*80%)
Amount You Can Borrow Reverse Mortgage
(55% of your home’s appraised value, less the outstanding balance on your mortgage)
$112,500
($750,000*55% – $300,000)
Amount You Can Borrow Second Mortgage
(80% of home value, minus the outstanding mortgage balance)
$300,000
($750,000*80% – $300,000)

What Type Of Loans Can You Get Using Your Home Equity?

You can access the equity in your home in a few ways:

Home Equity Loans 

A home equity loan, which is also referred to as a second mortgage, is a type of loan that allows you to borrow against your home’s equity. You can borrow up to 80% of your home’s value, less your mortgage balance. Like a traditional loan, you are given a lump sum of money, which you must then repay via fixed installments over a specific loan term.  

HELOCs

A HELOC, or home equity line of credit, is a type of credit line that allows you to access the equity in your home. You can borrow up to 80% of your home’s value, which would be considered your credit limit. 

You can access funds from your HELOC as often as you wish, up to the credit limit. Interest is only charged on the amount withdrawn. Once that money is repaid, you can continue to withdraw from your HELOC over and over as required.  

It should be noted that HELOCs include draw and repayment periods. Fixed repayments are not required during the draw period. Instead, only interest must be paid on the withdrawn amount during that time.

Where Can You Get A HELOC? 

Many big banks and credit unions offer HELOCs. However, a strong income and good credit are typically required. Plus, the loan process may take days. 

If you need fast approval and don’t have the best credit score or strongest income, consider a lender that can approve your application quickly, does not conduct a credit check, or does not require a substantial income. 

Alpine Credits is a great option to consider. If you’re a homeowner, you can get approved for an equity loan in as little as 24 hours and funded shortly after. Instead of basing your loan approval on your credit history or income, Alpine Credits looks at your home equity.  

Reverse Mortgages

A reverse mortgage allows you to borrow up to 55% of the value of your home, minus your outstanding mortgage balance, without the need to sell your home. No fixed mortgage payments are required while you still live in the home. Instead, the loan would be due for repayment if you move, sell your home, or if the last borrower passes away. 

You must be at least 55 years old to qualify for a reverse mortgage. 

Refinancing

Refinancing involves taking out a new mortgage with a different interest rate and terms to replace an existing mortgage. The lender uses the funds from the new mortgage to pay off the remaining balance of the existing mortgage. If you can qualify for a lower interest rate on a new mortgage, you could owe less on your new mortgage and lower your monthly payments.

Can Your LTV Affect The Amount You Can Borrow?

Lenders look at a few key factors when assessing a mortgage application to determine risk assessment, and loan-to-value (LTV) ratio is one of them. 

The lower the LTV ratio, the better. More specifically, an LTV ratio over 80% is considered high and would require mortgage default insurance when first buying a home. An LTV ratio above 95% is typically not accepted. 

You can lower your LTV ratio by making a larger down payment. This would reduce the amount you have to borrow relative to the value of the home. 

Your LTV ratio affects your ability to get a mortgage or home equity loan. It will also determine whether or not you will have to pay for mortgage default insurance.

How To Calculate Your LTV Ratio?

An LTV ratio is a measure of the value of a home relative to the mortgage amount. This number determines the maximum amount you can borrow. If you already have a mortgage, your LTV ratio is based on your remaining mortgage balance. 

To determine your LTV ratio, divide the loan amount by the home’s value, then multiply by 100 to obtain a percentage. 

Final Thoughts

If you need a loan and want to borrow against your home, you’ll want to know how to calculate how much equity you have. Luckily, calculating it is relatively easy. Once you know how much equity you’ve built up in your home, you’ll understand how much you can access if you need a loan. 

Home Equity FAQs

What is home equity?

Home equity refers to a homeowner’s interest in a property. In other words, home equity is the difference between the current market value of a home minus any outstanding mortgage.

What is an LTV?

LTV stands for loan-to-value ratio, which is the measure of a loan relative to the value of a home. LTV is expressed as a percentage.

How do I get my home appraised?

You can hire a certified real estate appraiser to have the value of your home professionally appraised. Knowing the value of your home serves many purposes, including applying for a home equity loan or determining a fair listing price if you intend to sell. 

How can you increase your home equity?

If you’re buying a home, you can make a larger down payment to increase your home equity right from the start. If you’re already a homeowner, you can make upgrades to your home to increase its value or make lump sum payments toward the principal of your mortgage as your loan agreement permits.

Are there fees involved with tapping into your equity?

Yes, there are typically fees associated with accessing your home equity, such as appraisal fees, title search fees, title insurance fees, and legal fees.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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