The Available Equity Calculator is a pivotal financial tool used predominantly by homeowners, real estate investors, and financial advisors. It provides a straightforward method to calculate the equity available in a property, which is essential for making informed decisions on refinancing, home equity loans, or selling the property. Understanding available equity helps property owners gauge their financial health in terms of real estate assets and plan future investments or debt management strategies effectively.
Formula of Available Equity Calculator
The formula to determine the available equity in a property is:
Available Equity = Current Market Value of Property – Outstanding Mortgage Balance
Where:
- Current Market Value of Property: The present value of the property as determined by the market or an appraisal.
- Outstanding Mortgage Balance: The amount still owed on the mortgage.
This simple calculation allows homeowners to understand how much of their property they truly “own” outright and how much could potentially be leveraged for financial activities.
Table of General Terms
To aid understanding, below is a table of key terms related to the Available Equity Calculator:
| Term | Definition |
|---|---|
| Available Equity | The portion of a property’s value that the owner actually owns, free of liens or mortgages. |
| Current Market Value of Property | The price at which a property would sell under current market conditions. |
| Outstanding Mortgage Balance | The remaining amount owed on the mortgage, which is subtracted from the market value to determine equity. |
Example of Available Equity Calculator
Imagine a homeowner who purchased a house at $300,000. Over the years, the market value of the home has increased to $450,000. The homeowner still has a mortgage balance of $200,000. Using the Available Equity Calculator:
Available Equity = $450,000 – $200,000 = $250,000
This calculation shows that the homeowner has $250,000 in equity, representing a significant asset that could be utilize for further financial planning, such as investments, home improvements, or as collateral for other loans.
Most Common FAQs
Available equity is the value of the property that the owner possesses free and clear of any mortgage or liens.
Knowing your available equity is crucial for financial planning, including refinancing options, assessing borrowing capacity, or preparing to sell the property.
Yes, available equity can change as the market value of the property increases or decreases and as the homeowner continues to pay down the mortgage balance.