how home equity works
if all or part of your home is funded with a mortgage loan the mortgage lender has an interest in the home until you pay off the loan home equity is the portion of a home s current value that you own outright 1you can have immediate equity in a house when you make a down payment after that the equity continues to grow as you make mortgage payments a portion of each payment includes interest and an amount that reduces the outstanding principal that you still owe another way equity can grow is from the appreciation of your property s value if your property declines in value you can lose equity you can also lose equity if you take out a second mortgage using your equity as collateral equity is the difference between what a home is worth and what s owed on a mortgage loan 2to calculate your home equity first get an estimate of your home s value by researching the value of homes like yours in your neighborhood that have recently sold say that figure is 350 000 and assume the balance of your loan which you can get from your mortgage lender is 150 000 with those figures here s how to calculate your home equity example of home equityif you buy a home for 300 000 with a 20 down payment covering the remaining 240 000 with a mortgage you ll have equity of 60 000 in the house if the house s market value remains constant over the next two years and 15 000 of mortgage payments are applied to the principal you would have 75 000 in home equity at the end of the two years if the home s market value had also increased by 100 000 over those two years you would then have 175 000 in home equity home equity is an asset and is considered part of your net worth however it is not a liquid asset 