How to calculate your home equity

Find out how much equity you have in your home, how to access it and what you can use it for.

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Unlocking the equity in your home is a great way to get financing for other investments or even just to enjoy life. When you have equity in your home, you can take out a home equity loan or line of credit to pay for home renovations, consolidate debt and more.

Building equity can also help you reduce the amount of monthly repayments you make toward your mortgage, freeing up money for other investments.

How to calculate your equity

To calculate the equity in your home, you need to subtract the balance left on your mortgage from the current value of your home.

Determining the equity in your home can help you figure out how much you can get for a line of credit using your home equity as security.

In order to calculate the value of your property, you can use lists of recent sales in your area. Compare the prices of similar properties recently sold in your neighborhood to give you an idea of how much your property could be worth. You can also use a professional real estate appraiser to get an accurate estimate of how much your property is worth.

To find out how much you still owe on your property, contact your lender or check your mortgage statement to determine the principal amount still left to pay.

What is home equity?

Home equity is the difference between the value of your property and the amount you owe on it.

If you’ve been paying your mortgage for a while now, you’ll have a reduced principal, or the initial loan amount you borrowed. At the same time, your home may have increased in value. The combination of the increase in value and the reduction in principal adds up to equity.

How do I build equity in my home?

  • Making your regular mortgage repayments
  • Price appreciation

If you’ve been paying your mortgage for a while now, you’ll have a reduced principal, or the initial loan amount you borrowed. At the same time, your home may have increased in value. The combination of the increase in value and the reduction in principal adds up to equity.

The benefits of knowing how much equity you have

Equity in property is an asset. Knowing how much you have can help you make sound investment decisions and unlock extra funds. Here are some ways you can use your home equity:

  • Renovate your home. If your home’s in desperate need of a face lift, you could use the equity you have in it to foot the bill. Not only will this make your house more attractive to live in, but it can also raise its value.
  • Consolidate debt. Many home equity loans or lines of credit come with lower interest rates than you’ll find with unsecured personal loans or credit cards. This makes them a great resource to use to consolidate your debt and save big on interest.
  • Invest in property. Using your home’s equity is ideal for investing in rental property, which provides capital growth and allows for increased savings in the long run. Plus, you’ll get a tax break on any interest paid on investments with a home equity loan or line of credit.

Use your equity to invest in your home or property

4 things to consider when accessing your equity

The equity in your home can be beneficial if used correctly. However, there are a few factors you should take into consideration before accessing your equity:

  1. Your monthly payments will increase. Accessing your home equity to get an additional loan or line of credit will increase the amount you owe to your mortgage lender, leading to higher monthly payments.
  2. Your lender may charge prepayment penalties. Some lenders charge fees if you pay off your loan or line of credit in the first 3-5 years of your repayment term.
  3. Your home’s value could decrease. The housing market can be volatile, which means your home’s value could drop during the life of your loan. If this happens, you could end up owing more that what your house is actually worth, causing your finances to take a major hit.
  4. Your house is on the line. With any type of loan that uses your home as collateral, you run the risk of having your home foreclosed on if you can’t make the repayments.

For these reasons, it’s always wise to visit a mortgage broker or financial adviser before accessing your equity.

How to access your home equity

A HELOC usually allows you to borrow up to 65% of the value of your equity — that amount serves as your credit limit. You can use as much or as little of the credit limit as you like, and you’re only charged interest on the amount you use.

The funds released from accessing the equity in your home can be used for any legitimate purpose. Here are 2 simple ways you can access your home equity:

Home equity loan

This is a type of second mortgage that allows you to use your home’s equity as security in return for a lump sum of cash. Home equity loans typically come with fixed interest rates, which means you pay a set amount each month during the life of the loan — usually 5-15 years.

Learn more about home equity loans

Home equity line of credit (HELOC)

Another type of second mortgage, it uses your home’s equity as collateral for a revolving line of credit that you can borrow from during a set period — normally 5-10 years. A HELOC allows you to withdraw money whenever you like and charges interest only on the amounts withdrawn.

Learn more about home equity line of credit

Compare home equity loans

Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score Link
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$35,000
3-10 years
Varies by province
560
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Fairstone offers secured personal loans up to $35,000.
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Bottom line

Now that you have a better understanding of how to calculate your home equity, you can assess your financial needs to see if taking out a home equity line of credit is a smart move. If you’re unsure about drawing upon your equity at this point in your mortgage, consider waiting a few more years until its grown in value.

Not sure a home equity line of credit is right for you? Check out our detailed guide to second mortgages to learn about using your home’s value to borrow a lump sum instead.

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