Skip links
a couple smiling in their homes

How to calculate home equity

How to Calculate Home Equity

Learning how to calculate home equity is important to take advantage of the unique opportunity many homeowners have in their property. Home equity may increase the financing options available to meet your financial needs. 

Before calculating home equity, it’s important to understand what it is. Home equity is the numerical difference between your outstanding mortgage and the appraised value of your property. Building equity happens naturally as you make regular payments towards your mortgage. The longer you have been paying the mortgage, the more significant the potential for a larger amount of home equity. 

couple discussing loan terms

How to calculate equity in a home 

Calculating the equity in your home is simple but requires the exact numbers. You may make an estimate, but exact numbers will keep you from overestimating your equity.  

home equity loan equation from Alpine Credits

It’s better to get an appraisal appropriately done than make an estimate. If you intend to get a home equity loan, your lender may conduct an appraisal during the application process.

You can find the exact amount of your outstanding mortgage if you sign into the online banking site of your bank or, you contact your mortgage lender. They’ll be happy to give it to you when you contact them.

Once you have the numbers, you can calculate the home equity with the formula above.

If you’re thinking of getting a loan, the equity that you have is not the exact value of the loan you could get. Lenders may provide 70%-80% of your home equity. 

To illustrate how to calculate home equity, picture a house that has an appraised value of about $1,500,000. If the outstanding mortgage on the house is $300,000, then that value would be subtracted from the appraised value. The result would then be $1,200,000; this number is the home equity. 

Factors that influence home equity 

Home equity can change, and you have control over some aspects.  

  • Home renovations—improvements on the home may increase its value by hundreds of thousands of dollars. Making the property more accessible or even just making it more visually appealing are ways you can improve the house.  
  • Amount of remaining mortgage—the more mortgage payments you have made, the more home equity you will have.  
  • Location—the neighborhood and environment that the property is in will be a factor in determining how much the house is worth. The house’s public transit accessibility, the view, the safety, and other aspects will all be considered in how much the house will be worth and may impact the property’s value over time as some areas appreciate more than others. 
  • Overall market value—individual provinces have different economies, which affects the appraised value of your house. For example, British Columbia has higher-value housing than housing in Saskatchewan does.
young applicant looking at her loan terms

What is loan-to-value ratio?

One term that you may hear frequently if you intend to unlock the equity in your home as a financing option is “loan-to-value (LTV) ratio.” The ratio indicates how much you’re borrowing compared to the value of the asset supporting the loan. It is represented by a percentage to show the value of a loan compared to its appraised value. The lower your LTV ratio is, the better your chances of qualifying for a home equity loan. You can calculate your LTV by dividing your mortgage amount by the appraised property value.

Best practices when applying for a home equity loan 

After calculating your home equity, the next step is to decide if a home equity loan is right for you.  

  • Explore all lending options—a good lender will not only have good interest rates, but they’ll also understand your financial position. They’ll be professional throughout the entire process while keeping your best interest at heart. 
  • Calculate your equity accurately –determining the true value of your home is an important step in the home equity loan process, so you know if you have the capacity to apply.  
  • Read loan terms and conditions—even after verbally agreeing to something with your lender, make sure that the contract coincides with your understanding. Be sure to ask questions and clear up any misunderstandings before signing documents. 
  • Discern your financial situation—home equity loans may be simpler to apply for and have less strict criteria, but they are still loans. Ensure that you can keep up with paying a loan with your current situation. 

Conclusion: What to do after calculating home equity 

Understanding the equity in your home can help unlock financing options that may help in meeting your financial goals. By determining if you have sufficient equity, you can see if you’re eligible for a home equity loan. These loans allow you to accomplish goals such as loan consolidation, home renovation, and business investments. 

Lenders like Alpine Credits can provide loans up to 75% worth of home equity, making it a viable option for major expenses like home renovation, loan consolidation, and business investments.  Alpine Credits has helped tens of thousands of Canadians just like you in accessing the equity in their homes.  

If you’re interested in accessing your home equity in a form of a loan, contact a Financial Solutions Specialist at Alpine Credits. They’ll be able to answer additional questions and guide you through the process. 

Frequently asked questions

Home equity is gotten by subtracting the amount owed on your mortgage from the current value of your home. 

To calculate a home equity loan, you must know how much equity you have in your home. Lenders may give loans up to 75% of your home equity. 

You may use a home equity loan for anything you want, but it should be within your discretion. Home equity loans are great for loan consolidation, home renovations, and business investments because of how large their value can be and because their interest rates are lower than personal loans.