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What is equity and how do I know how much I have?
Equity is the amount of 'free' money tied up in your property. It's 'free' money because there is no mortgage or loan secured upon it - it's the percentage of your property that you actually own!
Equity can effectively be 'borrowed' in the form of a secured loan or a second charge.
Working out how much equity you have in your property is a simple calculation:
Your equity = (your property's current value) - (your mortgage or any other loan secured upon it)
What is equity?
If you are a homeowner there is a good chance that you may have equity in your property, which could provide you with much needed financial leverage in the event that you need to raise funds without having to sell your home in order to tap into the profits tied up in your property.
In short, equity is the difference between the value of your home and any outstanding financial claims upon the home – and with property prices in the UK having soared over recent years many homeowners have found that they now have high levels of equity in their homes.
How much equity do I have?
Working out the level of equity in your home is a simple process, and if you are thinking of taking out a loan based upon your equity you should try and work this out using exact figures rather than approximations.
Basically, you can work out the equity levels in your property by deducting any outstanding mortgage or loans secured upon the property from the market value of your home. The amount that is left is your equity.
Calculating your equity...
You can easily get a valuation specialist or estate agent to come out and value your home for you, and you will then be able to use the market value to calculate your equity as accurately as possible.
You should then contact your mortgage provider or the loan company if you have loans secured against your home and ask them for details on your outstanding balance.
Once you have received all of these figures you can simply add up the amount that you owe on your property in terms of mortgage or secured loans, and deduct the total figure from the market value, leaving you with a very accurate idea of what your equity level is.
Borrowing your equity...
Those with a fair amount of equity in their homes can often enjoy some very good deals on finance, as many lenders are able to offer great deals on loans secured against the equity in a property.
With loans that are secured against equity you can often enjoy longer repayment periods and increased borrowing power (based on equity levels) than you would on an unsecured loan.
You can also enjoy longer repayment periods, which means that you can keep your monthly repayments down.
Do bear in mind that if property prices start to fall, the equity levels in your home will also fall, as the market value of the property will be reduced. However, once a secured loan has been taken out, if your equity decreases you will still hold the loan - the only change will be that if you sold your house, the profits may not completely cover the repayment of your loan.
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