Home Equity Loan Calculator Calculate The Value Of Home Equity

Home Equity Loan Calculator

This home equity loan calculator helps you calculate home equity that the owner can use to borrow more funds in case you have future funds requirements and if the bank is asking for collateral or security.

About Home Equity Loan Calculator

The home equity loan can be defined as the variance or difference between the current market value of the property and the outstanding loan balance taken against it. The formula is below:

Home Equity Value

MV - OP

MV is the Market Value of the home or the property in question
OP is the outstanding principal balance of the loan that was taken for the property

Wherein,

MV is the Market Value of the home or the property in questionOP is the outstanding principal balance of the loan that was taken for the property

How to Calculate using Home Equity Loan Calculator?

Home Equity Loan Calculator Example

Example #1

Since he had a good credit score, Mr. Kofi had purchased a house for $123,500 around five years ago, fully financed by the bank. The interest rate was 6%, the mortgage was for 15 years, and the current monthly installment he is paying is $1,042.16. The house measures 1000. Sq ft and the current market price of the property located in the same is $250 per Sq. Ft. Based on the given information, you are required to calculate the value of home equity.

First, determine the outstanding loan balance, which was taken specifically for the property in question. Now figure out the value of the property, which is nothing but the current market value of the property. Now, subtract the value in step 2 from the value in step 1; the resulting figure would be the value of home equity.

Solution:

As a first step, we shall calculate the outstanding mortgage balance for the property in question.Rate of interest applicable on monthly basis = 6.00% / 12 = 0.50%
The remaining period will be (15 x 12) – (5 x 12), 180 – 60, that is, 120.

We need to calculate the present valuePresent ValuePresent Value (PV) is the today’s value of money you expect to get from future income. It is computed as the sum of future investment returns discounted at a certain rate of return expectation.read more of the current outstanding balance, which can be calculated per the below formula:

= $1,042.16 x [1 – (1+0.50%)-120 / 0.50%]

= $93,871.24

The outstanding debt on the property is $93,871.24.

Now we need to calculate the property’s current market value, which we are given on a per sq ft basis. The value is $250 per sq. ft., and the total sq. ft. of the property is 1,000; hence the current market value of the property is 1,000 x 250, which is $250,000.

Now we can use the below formula to calculate the value of home equity

= 250,000 – 93,871.24

= 1,56,128.76

Since the value of the property has increased substantially and 1/3rd of the principal repayment is done, the owner is in a good position to repay the loan, and further, the worry of the lender would be less as the property value is more than the loan.

Example #2

Mr. JBL had recently met with a financial crunch and is already repaying the debt on his mortgage property for $1,231.66 when he got a loan for 95%, which was for $147,250, and the rate that was applied on the loan was 8%, and it was taken for 20 years period. He has not paid for ten years and has approached the bank to provide him with additional loans based on his home equity value. He has a requirement of $100,000, and the bank agrees to provide his loan for 85% of the home equity, which would be calculated. The property’s value has increased by 30% since he last purchased it. Based on the given information, you are required to calculate whether the funds required by Mr. JBL would be financed fully by the bank or if he needs to resort to unsecured debt for any shortfall.

As a first step, we shall calculate the outstanding mortgage balance for the property in question.Rate of interest applicable on monthly basis = 8.00% / 12 = 0.67%
The remaining period will be (20 x 12) – (10 x 12), which is 240 – 120, which is 120.

= $1,231.66 x [1 – (1+0.67%)-120 / 0.67%]

= $101,515.08

The outstanding debt on the property is $ 101,515.08.

Now we need to calculate the property’s current market value, which we are given in % of the loan. A loan that was borrowed was $147,250, and it was financed by 95%. Therefore the property’s value will be $147,250 / 95%, which will be $155,000, and since then, it has increased by 30%. Therefore, the current market value of the property is $155,000 x (1+30%), which is $201,500.

= 201,500 – 101,515.08

= 99,984.92

Since the bank will finance only 85% of the home equity, which is 99,984.92 x 85%, that equals $84,987.19.
There is a shortfall in the funds required by Mr. JBL, and hence Mr. JBL needs to borrow funds from outside as unsecured debt, which is 100,000 – 84,987.19, which is $15,012.81

Conclusion

As discussed, the home equity loan calculator can be used to calculate the value of equity, which is the remaining value of the owner’s interest against which, if the owner desires, can borrow more funds against the same for his personal or any business use. If the value of home equity is quite high, the chances are that banks would easily fund 90% to 95% of the home equity, and if the case is the opposite, then the bank would fund as low as 40% to 50%.