What is equity in a home?
The part of your home you actually own, which is what it is worth minus what you still owe on it.
It can shrink when prices fall, even while you keep paying the loan down.
The rule
- Equity is the value of an asset such as your house or property, less any money owing on it.
- A home worth $800,000 with $640,000 owing has $160,000 of equity. If the same loan were left and the home were worth $600,000, the sum would be negative: you would owe more than it is worth.
- Equity changes in two ways: the value moves, and the loan balance falls as you repay. A fall in value takes away equity that repayments built.
- In Help to Buy, the Government holds an equity share, a percentage of the home that it paid for. It shares any gain or loss in proportion when you sell or buy it out. In the published example the Government holds 30%, or $240,000 of an $800,000 home.
- The value a lender uses is its own valuation, and the lender decides.
What people ask
What is equity in a home?
It is what the home is worth less the money owing on it. If it is worth $800,000 and you owe $640,000, your equity is $160,000.
How do I calculate my equity?
Take the value of the home and take away your loan balance. Use the model above with your price, loan, years held and a price change.
What is negative equity?
It is when you owe more than the home is worth. Selling at that value would not pay off the loan.
Does equity go down when house prices fall?
Yes. The loan does not shrink when the price does, so the same debt is set against a smaller value. Early repayments are mostly interest, so the loan falls slowly at first.
What does equity share mean in Help to Buy?
It means the Government owns a share of the home, up to 30% of an existing home or 40% of a new one. It shares gains and losses in proportion when you sell or buy it out.