Home Equity — Been Paying for Your Home in America for 10+ Years? Check How Much Equity You May Have Built
If you’ve owned a home in America and have been making mortgage payments for 10 years or longer, your monthly payments may have been doing more than simply keeping a roof over your family’s head. Over time, you may have built a significant amount of home equity—an important part of your household’s overall financial picture.
Home equity can be understood with a simple calculation: current home value minus the amount you still owe on the property. If your home is currently worth $600,000 and your remaining mortgage balance is $350,000, you would have approximately $250,000 in gross home equity. That doesn’t mean $250,000 is sitting in a bank account, but it represents the difference between the property’s estimated value and the mortgage debt.
One way equity can grow is through paying down your mortgage principal. Mortgage payments generally include principal and interest, and the principal portion reduces what you owe. Freddie Mac notes that homeowners build equity over time as mortgage payments reduce their outstanding loan balance.
The second major factor is the value of the property itself. Suppose you purchased a home for $400,000 and, years later, comparable market information suggests it could be worth $550,000. If your remaining mortgage is $280,000, the simplified equity calculation would be $550,000 − $280,000 = $270,000. However, property values can also decline, so appreciation should never be assumed or guaranteed.
Don’t calculate your equity using the home’s original purchase price alone. You need an estimate of its current market value and your current outstanding mortgage balance. For a more precise picture of what you owe, Freddie Mac recommends contacting the loan servicer to determine the payoff amount; an appraisal or other r