What is Home Equity

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Learn about the portion of your home’s value that you own outright.

Home equity is the portion of your home’s value that you own outright. If you have a mortgage, you do not own the whole home — your mortgage lender has an interest in it as well. The goal of a mortgage is that as you make payments over time, your equity grows and the lender’s interest decreases, until you own the entire home outright.

However, your current home equity is a reflection of how much money you’ve put toward the property versus the outstanding amount you owe to your lender.

For example, if you sold your home for $600,000 and had a $400,000 mortgage, the lender would get $400,000, and you would get $200,000, which represents your equity in the home.

You can calculate your home’s equity using a simple equation:

Understanding Equity Equation

Short of selling your home, how can you determine what the current market value is?

To get the number, you can either do a comparative market analysis or have your home professionally appraised. A comparative market analysis is an informal estimate of your home’s market value. By plugging your data into a home value calculator, available on many real estate websites, you can obtain a ballpark figure of what your home is worth. Another option is to ask a local real estate agent to give you an estimate of the price your home could sell for.

For a more precise estimate, you may hire a certified appraiser, which typically costs a few hundred dollars. This appraisal takes many variables into consideration, including:

  • Size: Square footage, number of bedrooms and bathrooms
  • Interior: Construction quality, design and floor plan
  • Location: Neighborhood, access to transportation, shopping and schools
  • Exterior and physical features: Lot size, topography, view and landscaping

As a homeowner, how can I build equity?

You can build equity through making a down payment when you purchase your home, paying down your mortgage balance by making the monthly payments, and experiencing appreciation.

What is appreciation and how can I benefit from it?

Appreciation occurs when market demand rises. For example, if you bought your home for $200,000 a few years ago, it may someday sell for $250,000 because prices in your neighborhood have increased. Your property may also appreciate if you made repairs or home improvements.

While home values tend to appreciate over time, they do not have to. When the value depreciates, your equity decreases. If it depreciates enough, you could have negative equity, where the value of your house is less than the amount you owe on your mortgage.

At Bethpage Federal Credit Union, we offer affordable home equity lines of credit (HELOCs) at competitive rates to help you utilize the value you own in your property. Contact us today for guidance and advice so you can decide whether a HELOC is right for you.