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Home Equity Equation:
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Home equity represents the portion of your property that you truly "own." It's calculated as the current market value of your home minus any outstanding mortgage balance. Clark Howard emphasizes understanding your home equity as it's a key component of your net worth and can be used for financial planning.
The calculator uses the simple home equity equation:
Where:
Explanation: This straightforward calculation shows how much of your home you actually own versus what you still owe to the bank.
Details: Knowing your home equity helps with financial decisions like refinancing, taking out home equity loans, selling your home, or understanding your overall financial health. Clark Howard recommends regularly tracking this number as part of your personal finance strategy.
Tips: Enter your home's current market value and remaining mortgage balance in USD. For most accurate results, use recent appraisal values for your home and current mortgage statements.
Q1: What's considered "good" home equity?
A: Clark Howard suggests that having at least 20% equity is ideal as it helps avoid private mortgage insurance (PMI) and gives you more financial flexibility.
Q2: How often should I calculate my home equity?
A: It's good practice to check annually or whenever your home's value changes significantly (after renovations or during market shifts).
Q3: Can my home equity be negative?
A: Yes, if you owe more on your mortgage than your home is worth (called being "underwater"), your equity would be negative.
Q4: How can I increase my home equity?
A: Clark Howard recommends two main ways: paying down your mortgage principal and making home improvements that increase your property's value.
Q5: Should I borrow against my home equity?
A: Clark Howard advises caution with home equity loans - they can be useful for major expenses but put your home at risk if you can't repay.