If your mind is still muddled on thinking how to calculate your home’s equity, then, don’t think of it as a hard task to learn. Just like a new job in the office, you can easily master the trick most especially if you are looking to refinance your home or need emergency funds for an important project. How to calculate equity in a home is simple and can be learned in a few steps.
Introduction to Home Equity
Home equity is explained as the difference between your home’s current market value and the total amount you owe to mortgages associated with your home. It is also associated with LTV (Loan to Value) ratio.
If there is more than one loan linked to your property, the sum, divided by your home’s value is known as CLTV (combined loan to value) ratio.
Learning How to Calculate Equity in a Home
Here is an easy example:
Your present home value is at $270,000. You have a balance on your first mortgage amounting to $130,000 and a HELOC (home equity line of credit) balance of $35,000. Add the last two and you would come up with $165,000. Subtract the sum from $270,000 and you got $105,000. That is the dollar value of your home.
The Importance of knowing LTV
The LTV formula plays an essential role when talking about mortgage. Loan to value is computed by dividing your remaining loan balance against its current market value. Once you are aware how this works, you can be assured that you’d never run dry of financial resources when bad times strike.
However, it is also crucial to track all the scheduled payments and resources to pay for your loans as you can be overleveraged. Home equity, LTV or CLTV can fluctuate whenever there is a change in market value more so if the economy is down. You should be reminded that from 2007 to 2008, many Americans lost their homes due to mortgages.
Reducing your LTV ratio is possible
You can always lower your loan to value ratio by meeting your scheduled payments and paying all your mortgages as per loan term agreement. Reducing it is faster if you shell out a little more than your monthly amortization.
Another neat way of raising your LTV ratio is by keeping your home well-maintained. Improvements can go a long way and can get a good impact during appraisals. If you are keeping an eye on your property most of the time, there is not a chance that it will rot within the span of a few years while it is mortgaged.
Nevertheless, consulting a real estate agent is a good idea prior to starting on your home improvements. You have to understand that during bad economic conditions, regardless of home improvements, the value of your home may go down. That is why you have to consult, consult and consult before anything else.
On top of these, you must know how to calculate home equity in a home so you will not end up wondering every time you want to try borrowing money with your home as collateral.
Let our team at www.homeequitylineof.credit teach you how to calculate home equity lines of credit so you can get the best deal available today.