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How is my home equity calculated?
Calculating your home equity is relatively simple if you have your property's value, any remaining mortgage balance and any liabilities secured against it to hand. If you want to work out your equity yourself, you can follow these steps.
Home equity is the value of how much of your home you own outright.
ⓘ Did you know...
Your home equity builds over time as you make mortgage payments each month - until you've paid off 100%. This then gives you 100% home equity. Your home equity will also increase if your home goes up in value and will decrease if your home value goes down.
Enter your home’s current market value and subtract any remaining mortgage or loans secured against your home. The result will show your available equity.
Why is your home equity important?
Understanding your home equity is key to making informed financial decisions. It can impact several financial opportunities:
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If you’re looking to remortgage, home equity helps lenders determine how much they’re willing to offer and at what interest rate.
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If you're planning to sell your home, knowing your equity gives a clear view of how much you have available to buy a new property. It also shows what you can use for other financial goals.
Understanding your home equity opens up options for greater financial flexibility. This helps you make the most of your property's value.
Once you've calculated your home equity, you could explore using it in a few different ways, such as:
If you're aged 55+ and your property is worth £70,000+, you could release some of the equity in your home. There are two types of equity release:
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A home reversion plan: Where you sell all or part of your property to the reversion company in exchange for a cash lump sum, regular income, or both. You must be a UK homeowner aged 65+ to be eligible.
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A lifetime mortgage: A loan secured against your home where the money you borrow (plus the compound interest that has accrued) is typically paid back in full when you pass away or go into long-term care. At Key, we only offer lifetime mortgages.
Releasing home equity provides financial flexibility by allowing you to access some of the value tied up in your home. It can be an effective way to boost your finances without needing to sell your property. Here are some reasons why you could use home equity:
It's important to keep in mind:
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Releasing equity will reduce the value of your estate, affecting how much inheritance you leave behind. This will reduce your financial options in the future.
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You should always think carefully before securing a loan against your home to repay existing debt.
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Carefully research and seek advice to ensure utilising your home's equity is the right option
Home equity FAQs
Knowing your home equity gives you a clear understanding of the value you own in your property, which is key to making smart financial decisions. If you want to remortgage or release equity, lenders will look at your equity to decide how much you can borrow and at what rate. More equity often means better borrowing terms.
Additionally, if you're thinking of selling your home, knowing your equity helps you plan how much you have available to put towards a new property or use for other financial goals. Understanding your home equity gives you more control over your financial future.
If your home equity is lower than you’d like, there are a few ways to improve it. If you have an outstanding mortgage, the simplest way is to keep up with your mortgage payments. You may also be able to overpay each month to build equity faster, but check if early repayment charges apply.
Maintaining your home is key to preserving its value. You might also consider home improvements to boost its market appeal and equity. Be sure to consult professionals to weigh the costs against the potential value increase.
Remember, property values depend on the economy and housing market. Property value changes can affect your equity, regardless of your mortgage or home’s condition.
If the total amount you owe on a mortgage and any other debts secured against your home is higher than the current value of your home, you'd have what's described as negative equity.
Here’s an example of how negative equity works:-
Your property has an outstanding mortgage balance of £200,000
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When you first purchased your home your property value was £200,000, but due to market fluctuations, it is currently valued at £190,000
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In this case, you are in negative equity by £10,000
Having negative equity can make things trickier if you want to explore options such as selling your home or remortgaging.
You should check your home equity regularly. This ensures you're aware of your financial position and can plan accordingly.
It's also important to review your equity if you're thinking of selling, remortgaging, or borrowing against your property. Checking it regularly helps you stay informed. This allows you to make smarter decisions about your property and finances.
Home value is the current market worth of your property. It can fluctuate over time based on market conditions.
Equity is the portion of the home you truly own. It’s calculated by subtracting any existing mortgage or loans secured against your home from the property's market value.
Essentially, equity represents your financial stake in the home, while home value is the total worth of the property.
Page last updated: Tuesday 08 October 2024