As a homeowner, you’ve probably heard of the term “home equity,” but are you familiar with what it means? Home equity represents the potential cash profit you would receive if you sold your home and paid off your remaining debt. Did you know you can leverage the equity you have in your home, and put it to work for you? Learn how to calculate your home equity, and how you can use it below.

How is home equity calculated?

Calculating your home equity is as simple as taking the current value of your home and subtracting the amount you still owe on your mortgage and any other liens you may have against the property.

For example, if your home is valued at $300,000, and you have a loan balance of $100,000, you will have $200,000 in total equity on your home. When working with your lender to calculate your home equity, they will conduct an official appraisal to get the most up-to-date valuation of your home.

From there, your lender will determine the amount of accessible equity you have in your home. Your accessible equity is what you can put to work for you. This is usually around 80% of what your home’s value is. So, for a home worth $300,000, 80% of that amount would be $240,000. After subtracting the $100,000 left on your loan balance, this leaves you with an accessible equity amount of $140,000.

What can I do with my home’s equity?

There are many ways to leverage your home equity. A home equity loan can help you finance major life expenses, such as college tuition, a wedding, or investment opportunities. It can also be used to fund home improvements or renovations, or purchasing an additional property, such as a vacation home, or land.

Your lender will need to approve the use of your home equity loan. They will also look at qualification factors such as your credit score, and debt-to-income ratio like they would for any other loan. It is important to note that to qualify for a home equity loan with GreenStone, your first mortgage must also be financed with GreenStone.

How to know if a home equity loan is right for you

Equity can be a powerful financial tool, but it should be used wisely. When determining the right way to utilize your home equity, ask yourself these questions:

• Can I afford to add a new monthly payment in addition to my existing mortgage?
• Are the interest rates for a home equity loan favorable?
• Is a home equity loan the best choice for my individual needs, or would an alternative financing option be better for me?

A home equity loan should be a strategic investment that makes sense for your unique goals. As an existing GreenStone home loan customer, our dedicated team of loan experts will walk you through each step of the process and ensure your goals are aligned with the funds accessible through a home equity loan.  

How home equity loans work

When it comes to building equity in your home, the value of your home will generally grow naturally over time due to market appreciation and inflation. Investing in your home through home improvements such as bathroom or kitchen upgrades, or major projects like an addition or finishing a basement will also increase your home’s value. Making extra payments to the principal and simply paying down your mortgage over time are other ways to build equity, giving you the opportunity to use it to your benefit.

Home equity loans with GreenStone can be financed anywhere from five up to 30 years on a fixed interest rate. As an existing home loan customer with GreenStone, if you only have a few years left to pay on your mortgage, you have the option to keep your existing loan and finance your home equity loan separately. You may also have the option to roll your existing loan into a new one that includes your home equity loan, consolidating both into one loan. This is something your GreenStone financial services officer can advise you on. Your financial services officer will work with you after being approved to find the best structure for your home equity loan.

Refer to the experts

Understanding the equity you have built up in your home will help you make informed decisions on how to use it and how it can benefit you the most.

If you have any questions on how you can access your home’s equity and how you can put it to work for you, don’t hesitate to reach out to your local GreenStone branch and speak with a member of our lending team!