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How do I work out my equity?
While the equity in your home isn’t something you need to know on an everyday basis, it’s good to be aware of it if you’re planning on remortgaging.
You might think working out your equity will be difficult, but it shouldn’t be. As long as you have a couple of pieces of information, it should only take you a few minutes.
Your home’s value vs. how much you owe on your mortgage
Put simply, your equity is just the difference between how much your home is worth now and how much you owe on your mortgage.
We’ll break down how you can work this out into three simple steps below:
1. Find out how much you owe on your mortgage
You should be able to find this out by looking at your most recent mortgage statement, getting in touch with your lender or logging into your online mortgage account if you have one. You may also be able to check this information by looking at your credit history through a free service like ClearScore or Noddle.
2. Find out how much your home is currently worth
You have a couple of options here. The Land Registry hold information on how much properties in your area have sold for, or you could use a property website like Rightmove – who offer a house price calculator here.
3. Subtract how much you owe on your mortgage from your home’s value
Now all you have to do is take away one of the values from the other.
For example, if your home is worth £150,000, and you owe £125,000 on your mortgage, you have £25,000 in equity.
But things might get a bit more complicated if the value of your home has changed since you bought it.
If it’s gone up in value, this is a good thing, as it means you have more equity in your home. So if your home has gone up in value from £150,000 to £175,000, but you still owe £125,000 on your mortgage, your equity is £50,000. This is because your home has gone up in value by £25,000.
On the other hand, if your home has fallen in value from £150,000 to £130,000, your equity will only be £5,000 if you owe £125,000 on your mortgage. This is because your home has fallen in value by £20,000.
It’s uncommon, but sometimes property prices can fall so that you actually owe more on your mortgage than your home is worth. This is called being in negative equity, and can cause quite a few problems if you want to sell your home or remortgage. You can find out more about it here.
Why is this useful?
Calculating the amount of equity you have is useful as it means you can find out which remortgage deals you are more likely to be accepted for.
To do this, you’ll want to work out your LTV (Loan To Value). This is simply the ratio of how much you owe on your mortgage compared to how much your home is worth.
So in our first example of a £125,000 mortgage on a home worth £150,000, the LTV would be 83%.
The lower your LTV, the better, as it means you own more of your home. Usually, the best deals are reserved for people with a LTV of around 60% or lower. The more equity you have in your home, the lower your LTV will be.