Home LoanHow Do You Calculate Home Equity

May 25, 2024

What is Home Equity?

This is the difference between the total amount you owe on a mortgage and what the home’s value is. It’s actually what you can say you own in a home. The sum of equity in a house can increase as time goes by while you make payments and the property’s value rises. Basically, home equity is the property’s current market value less any liens, like mortgages which are bound to that property. It is an asset that you can take against to meet necessary financial needs like paying off highly-priced debt or paying school fees.

Why is it important to know Home Equity?

Home equity can be a continual strategy for building revenues. Mortgage payments lessen what you owe while your home acquires value, so paying on a house has been called “a forced savings account.” This is different from many other assets bought with a loan like vehicles, which normally lose value while you pay them off.

How does home equity work?

As you make payments for the principal balance, your share of ownership increases and the lender’s share decreases. Building home equity is like saving up for a long-term instrument. Your money is locked up and not fully spendable until you sell the home.

Economic Factors That Affect Equity

The status of various factors that shape the economy has a direct impact on home resale values and equity. Although the relationship can be inverse, it’s important to understand how that impact works. Here are some specific factors of the economy that can help or hurt the value of your home equity.

  1. Demographics
    The greatest factor affecting home equity is an increase in housing prices. When more people have demands on housing, prices go up. This may be because people come to a location for employment.
  2. Income
    An increase in how much you are earning will allow you to pay off your home sooner or to add improvements that build equity. An increase in your monthly income makes it easier for you to afford a house which drives demand that pushes up prices.
  3. Interest Rates
    Higher rates lead to longer term home loans and a larger amount of time needed to build equity. They can also lead to lower home affordability which affects prices and also equity. The decreased affordability may cause more people to stay in their current homes which builds equity by paying off the loan and potentially making improvements while they stay.

How to Calculate Home Equity?

Here’s an example on how to compute your home equity:
AUD 500,000 (Current Appraised Value) – AUD 200,000 (Mortgage Balance) = AUD 300,000 (Home Equity)

Home improvements that could boost your home equity:

  • Minor home improvements
    Spending a lot of money just to increase the value of your home is not needed when it comes to these projects:

    • Fresh paint
    • New lighting fixtures
    • Kitchen upgrades
    • Bathroom upgrades
    • Adding landscaping and curb appeal
  • Major home improvements
    If you have a good budget, these major improvements can significantly add value to your home. But the catch is you might need a professional for any projects you aren’t qualified to DIY. A job done poorly won’t help in adding up value to your home.

    • A new room
    • A full kitchen or bathroom renovation
    • An attic or basement conversion
    • Flooring upgrades
    • Adding outdoor living space such as a deck, patio or porch
    • Window replacement
    • Siding replacement

It’s also necessary to know which home improvements have the lowest ROI. Investing and putting up a swimming pool, making high-end upgrades and enlarging a garage can be among the worst projects to put up if your goal is to increase home equity. But if you’re looking to get the most out of your home equity, stick to the projects above.

Do’s and Don’ts for Using Home Equity


A home equity loan can be effective if it will be used for home improvements that maintain or increase the resale worth of the home. It may also be proper to use home equity to buy income generating property or an investment that’s expected to give a higher return than the total cost of the loan.
If you do not have emergency savings, your home equity can provide financial help related to unexpected events such as a sickness or an injury preventing you from working. But it’s still ideal to have an emergency fund with at least three to six months of living expenses.


You shouldn’t use home equity for luxury items like an expensive car, yacht, big screen TV or a luxurious vacation. The moments of joy aren’t worth putting your family’s security at risk.
If you are planning to sell your home, you need to pay off all debts related to your home. It could be a very poor move to tap equity for improvements if you can’t pay off the loan.

Australian Financial and Mortgage Solutions and Home Equity

Australian Financial & Mortgage Solutions is a guide for homeowners getting into the complicated world of home ownership. Their mastery covers comprehensive financial analysis, market insights and customised mortgage solutions and even a help to calculate home equity. Australian Financial & Mortgage Solutions experts work closely with clients by understanding their special financial goals and come up with strategies to tackle home equity effectively. By offering a variety of mortgage products and personalised assistance, Australian Financial & Mortgage Solutions allows homeowners to make educated decisions aligned with their long-term goals.

In the constantly developing real estate market, Australian Financial & Mortgage Solutions provides critical guidance to homeowners looking to learn more about their home equity in Sydney. With great knowledge about local laws, lending operations and compliance requirements, Australian Financial & Mortgage Solutions makes sure that clients get into the home ownership process smoothly. By staying on a level of regulatory changes and industry growth, AFMS Group secures the interests of homeowners and gives transparent and compliant home ownership transactions.

Contact Australian Financial & Mortgage Solutions today to schedule an appointment. Let us personalise a home ownership technique that suits your special needs and objectives. Whether you’re looking to access home equity, cash for renovations, lower your monthly payments or consolidate debt, Australian Financial & Mortgage Solutions is here to lend a hand.

Don’t wait any longer to advance your financial state. Trust Australian Financial & Mortgage Solutions and drive on a path towards exceptional financial freedom. Reach out to us now and take control of your financial future.