For several reasons, you can calculate the equity you’ve built using a home equity calculator. Aside from the anticipation of ownership, your home’s equity can help relieve you of some financial responsibilities as it can be used as collateral for loans.
A home equity calculator determines the difference between your home’s current worth and the outstanding balance on your mortgage.
The property valuation and the outstanding mortgage are the figures needed to calculate home equity. The value you get is the amount you can borrow, provided you’ve maintained a good credit score (above 600) and have a loan-to-value ratio of 40%.
Calculating your home equity may save you from unexpected expenses. If you want to learn more about home equity and its calculation, this article is for you. Keep reading!
What is Home Equity?
Of Course, we can only talk about home equity calculators after first understanding what home equity is. So, here you go:
Simply put, your home equity represents your stake in your landed property. This implies that as you pay off your mortgage, your debt to your lender decreases, and your equity grows. Although, you can only claim full ownership once your mortgage is fully paid. However, your equity can be used as collateral for loans.
Home Equity Calculator
As a homeowner looking to access extra finances, consider pledging your equity as collateral for loans. However, your percentage of equity will determine how much you are eligible to borrow.
This is where a home equity calculator comes in. These calculators are primarily web-based and sometimes associated with financial companies that provide equity loan services. To use this calculator, here are the values you would require:
Estimated Home Value
Home value is the current market value of your house. It’s no news that landed properties rise in value over a long period. However, depending on the location and taxation, the value of a house may drop. Therefore, you may want an appraisal of your home to determine its current market value.
Estimated Mortgage Balance
Your mortgage balance is the money left unpaid by the mortgage principal. For example, suppose you took a mortgage of $300,000 and have paid off $125,000. The mortgage balance will be 300000 – 125000 = 175000. Therefore, your mortgage balance is $175,000.
Credit Score
When it comes to mortgages or loans, your credit score matters. This value can affect the amount of loan you can borrow or even deny you the opportunity. Check the list below to know where your credit score falls:
- Excellent: 800 – 900
- Very Good: 720 – 799
- Good: 650 – 719
- Fair: 600 – 649
- Poor: 300 – 599
A poor credit score can make you not eligible for a home equity line of credit or equity loan.
How to Calculate Home Equity?
The formula for calculating home equity is as follows:
Home Equity = Home Value – Outstanding Mortgage.
For instance, your home was valued at $450,000, and your remaining mortgage is $170,000. Therefore, your home equity will be $280,000, and as such, you can apply for an equity loan or home equity line of credit loan to the tune of $280,000.
However, having a low credit score means that your loan-to-value ratio is below 40%, which could result in losing your eligibility.
To use a home equity calculator, you must log onto a home equity calculator website, input all your details, and calculate. The results should be immediate.
Home Equity and Second Mortgage Loan
Your home’s equity can be used as collateral for a second mortgage. This equity or second mortgage is served simultaneously with the existing loan or mortgage. For instance, if your home equity is $230,000, you qualify to apply for a secondary mortgage to the tune of that amount.
It’s a good thing most home equity calculators require you to state if you are already serving a second mortgage loan. If you are, it will also let you know how much you can borrow using the equity you have built.
How to Calculate Home Equity When Taking a Reverse Mortgage Loan?
You can use the equity built on your home to get a reverse mortgage loan. However, this loan is only available to older citizens as it helps you convert 55% of your equity into tax-free cash.
For instance, your home’s equity is valued at $350,000. Therefore, for a reverse mortgage, you are entitled to 55/100 × 350000 = 192500, which means that you can get, in cash, the sum of $192,500 tax-free cash with a reverse mortgage. This simple arithmetic can be done using a home equity calculator.
Where to Access Home Equity Loans in Canada
As a homeowner, you may want to tap into your home equity in the form of cash or an extra mortgage. After calculating the equity you have acquired in your home, the next step is to look for reliable financial companies that can deliver such services. Especially in Canada, Source Capital is one such company.
Spring Mortgage is a financial lending company in Canada providing several lending services to citizens of Canada. The services provided include personal loans, mortgages, home equity loans, HELOC loans and many more.
Home Equity Calculator Conclusion
You can find out how much equity you have in your property with a home equity calculator. This equity can serve as collateral for any home equity loan or mortgage.
However, to know the amount of money you can borrow, you can calculate it yourself using the home equity formula. Or you could use a home equity calculator, which is typically web-based.
