What is home equity?

Siddhi Sharma
/ Categories: Knowledge, Personal Finance
What is home equity? 461 0

In India, every family desire to purchase a house for themselves. Possessing own house is a big achievement in a common man’s life. In order to finance it, individuals take home loans while some percentage is paid as a down payment. So, in context to this, let’s know what’s home equity? Home equity is the actual amount that a homeowner possesses i.e., real property current market value less any liabilities against the same home. You can take a loan against this home equity in order to finance anything such as vacation, children’s expenses, etc. and your home serves as collateral

How to calculate home equity? 

Home equity = Current value of the house – Total outstanding amount payable towards the loan. 

For instance, 

Mr Varma purchased a flat worth Rs 70 lakh in January 2015 by availing a housing loan of Rs 50 lakh for tenure of 15 years at the rate of 9 per cent per annum. The value of the flat as in January 2021 has appreciated Rs 120 lakh. What approximate value of home equity can he consider in his flat? 

Particulars 

Amount 

Calculation 

Flat price as of Jan 2015 

70,00,000 

  

Loan amount 

50,00,000 

  

Home equity 

20,00,000 

(70,00,000-50,00,000) 

Tenure 

15 years 

  

Rate 

15 per cent 

  

EMI 

-50,713 

PMT(9 per cent/12,15*12,50,00,00,000) 

Outstanding loan after 6 years i.e. as of Jan 2021 

37,44,640.93 

PV(9 per cent/12,(15-6)*12,-50,713.33,0,0) 

Flat value as of Jan 2021 

1,20,00,000 

  

Home equity as of Jan 2021 

82,55,359.07 

(1,20,00,000-37,44,640.93) 

  

This is how home equity can be calculated. Mr Varma can take a loan against the home equity amount. The equity of home varies from time to time. If the home you own has no loan obligations, then the equity will be based on the market value of the house. Unlike a home loan, a home equity loan can be availed for any purpose and is available against both residential and non-residential properties. 

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