Your home does a lot for you. It gives you shelter, acts as an expression of your taste and personality, and is a hub for countless memories. But if you’re making consistent payments on your mortgage over time, it may also be doing something else behind the scenes: helping you build home equity.
Homeowners are often familiar with home equity, yet many aren’t quite sure how much they actually have, or what it might mean for their financial picture. Between shifting home values, mortgage statements, and industry terms that feel more complicated than they really are, it’s easy to be a bit unsure about where to start.
That’s why in this article, we want to help you understand how home equity works, so you can hopefully get a clearer view of what your home is worth today compared to what you owe. With just a few pieces of information, you may be able to calculate your equity and better understand how it changes over time.
What Exactly Is Home Equity?
In simple terms, home equity is the portion of your home that you truly own. It’s the difference between your home’s current market value and the remaining balance on your mortgage. If your home is worth more than what you owe, you ought to have some equity.
Here’s a very high-level example to illustrate this:
If your home is valued at $400,000 and your mortgage balance is $250,000, you may have $150,000 in equity, assuming no other contributing factors. That number will shift over time as you continue paying down your loan and as the market changes.
Equity doesn’t have to be an intimidating financial concept; it’s simply a measure of value. But it can be helpful to understand and to be able to calculate because it can inform an aspect of your overall financial wellbeing.
Why Your Home Equity Changes Over Time
Home equity isn’t a fixed number. It rises or falls, especially as these two things shift: your home’s value and your mortgage balance. When either one changes, your equity does too.
As you continue making payments, your mortgage balance generally decreases, which can increase your equity. At the same time, your home’s market value may move up or down based on broader housing trends, local demand, or general economic conditions. Even improvements you make to your home may influence its value, though that impact can vary and isn’t guaranteed.
Because these factors change, your home equity does as well. So, when you calculate home equity today, that number may look different a few years, or even a few months, from now.
What Your Home Equity Can Tell You
Understanding your home equity can help you assess how your investment has changed over time and how your mortgage payments and market conditions have shaped your current position.
Tracking your home equity can help you understand:
- How much of your home you truly own. As your loan balance decreases, your ownership stake increases.
- How your home fits into your long-term financial picture. Equity can be one indicator of overall financial stability and progress, especially if it grows gradually over the years.
- How market changes may be affecting your home’s value. Rising or falling prices in your area can influence your equity and give you a sense of how the housing landscape is shifting.
While equity itself isn’t a roadmap for what to do next, it can be a helpful piece of information as you think about your home, your budget, and your goals.
How to Calculate Your Home Equity (Step-by-Step)
Calculating your home equity is more straightforward than it may seem. To get an idea of what you’re working with, you only need two numbers: your home’s current estimated value and your remaining mortgage balance. Once you have those, the math is simple.
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Estimate your home’s current value
Start by getting a general sense of what your home might be worth today. There are a few ways to do this:
- Look at recent comparable sales in your area
- Look into trustworthy online valuation tools
- Review a professional appraisal if you’ve had one done recently.
Keep in mind that you are likely finding estimates here if you aren’t working with a recent professional appraisal.
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Find your current mortgage balance
Your mortgage balance is the amount you still owe on your home loan. You can probably find this on your most recent mortgage statement or through your loan servicer’s online portal. Make sure you use the principal balance, not the amount you originally borrowed.
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Subtract your mortgage balance from your home’s value
Once you have both numbers, use this simple formula: Home’s Current Value – Mortgage Balance = Home Equity
Remember our example from earlier? For a home valued at $400,000, a mortgage balance of $250,000 means you may have around $150,000 in home equity.
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Review what the number means for you
Your equity naturally changes over time as you make payments and as the market fluctuates. So, whatever you find when you calculate home equity is just a snapshot of this moment. If you have goals pertaining to your home equity, focus on the things you can control, like consistently paying your mortgage.
Home Equity FAQs
How often should I check my home equity?
Most homeowners only need to check their equity once or twice a year, if that. A quick review can be helpful when market conditions shift, when you’ve made significant progress paying down your mortgage, or when you’re planning ahead for major financial decisions.
Can home equity ever be negative?
Yes. Negative equity happens when your home is worth less than the remaining balance on your mortgage. This can occur if property values decline or if the loan balance hasn’t been paid down enough to offset changes in the market. While not common in all areas or markets, it’s certainly possible.
Does checking my equity require a professional appraisal?
Not necessarily; it typically depends on why you’re checking. For a general estimate, you can look at recent home sales near you or use online valuation tools. A professional appraisal may offer a more precise value, but it’s usually only required in certain situations, such as specific loan applications. For an at-home calculation, a simple estimate is often enough to understand your current equity.
What affects my home’s value the most?
Your home’s value is influenced by many factors, including local market conditions, comparable sales, broader economic trends, and the overall condition of your home. Updates or renovations may also play a role, though their impact can vary and isn’t guaranteed.
Final Thoughts
Calculating home equity is a simple way to understand more about where you stand as a homeowner. With just a few numbers, you can get a clearer picture of how your home’s value compares to what you owe and how that relationship evolves over time.
As the market shifts and your mortgage balance changes, your equity will move too. Staying aware of those changes can help you feel more informed and confident, whether you’re planning ahead or simply keeping track of your financial progress.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
