Written by Barkley Rickman
With today’s continued rise in home values, many homeowners are pondering if now is the time to sell, refinance, or take advantage of the equity that they have built over the years. However, most homeowners are unaware of how to calculate the value that they have amassed from homeownership and how it can work to their advantage. It is critical to understand how to calculate equity before you make any decisions.
How Much Equity Do I Have?
Home equity is generally defined as the difference between the current market or appraised value of your home and the total of the liens that may be associated with it. The balance on any mortgage(s) will weigh in and make up a majority of the liens. You will find yourself in a stronger position the more you have paid overtime.
You can calculate the total equity of your home by using the equation below:
Current home value – Mortgage(s) balance = Home equity
Example: $400,000 (appraised value) – $140,000 (mortgage balance) = $260,000 (home equity).
*Obtaining a professional home appraisal or using an online home price estimator can be beneficial in determining your home value.
Calculate Your Loan-to-Value Ratio
It is important to know your loan-to-value (LVT) ratio if you are considering borrowing against the value of your home or obtaining a line of credit. Very few lenders will allow homeowners to borrow against the full value of the home’s equity.
To calculate your loan-to-value ratio, use the equation below:
Loan balance / Appraised value = LVT.
Example: If we use 80% for our calculations, $140,000 (loan balance) /$400,000 (appraised value) = 35% (LTV).
In this example, a higher LTV may indicate a higher level of risk to a lender therefore would possibly be able to borrow or obtain a line of credit of $180,000.
How To Increase Your Home Equity
Even with the recent rise in home values, you might find that your equity is not as high as you hoped for. To strengthen your position, make your mortgage payments on time and reduce your principal by making additional payments each month. The real estate world is always changing and right now, markets are working in your favor. Therefore, it could be a great time to take advantage.
Although the real estate market always has a level of volatility, the past few months have certainly proved thought-provoking. With interest rates still hovering at historic lows and home values still on the rise, selling your home might be a great option.
Your home is one of if not your largest financial asset. At Parker Group, we can provide you with the tools to make an informed decision and maximize your position when listing your home in downtown Greenville.
For more information and tools contact Parker Group.
About the Author:
Barkley Rickman is a REALTOR® and Residential Sales Associate for Parker Group. He has lived in Greenville SC most of his life and now shares his pride for Greenville with others by helping them find a place to call home. Learn more about Barkley here.