How To Calculate Your Current Home Equity

The number one reason to buy real estate is because it's an appreciating asset - okay maybe second to that dream kitchen you’ve been eyeing 😉.

Compared to the boats, the trailers, the cars… all depreciating. But real estate appreciates year after year!

But what exactly does that mean? And how can you calculate your home equity?

In this blog post, we’re covering it all!

What Is Home Equity?

Before diving into how to actually calculate the equity of your home, let’s get clear on what home equity even is!

Home equity is the portion of your home that you truly “own” — meaning the difference between what your home is worth on the market and what you still owe on your mortgage.

Think of it like this: if your home is currently worth $400,000 and you still owe $250,000 on your loan, you have $150,000 in home equity.

Equity typically grows in two main ways:

1) The first is by paying down your mortgage balance over time.

Every payment you make chips away at what you owe, which slowly increases the amount of ownership you have in the property.

2) The second is through appreciation.

If your home’s value increases because of market conditions, neighborhood growth, or home improvements, your equity can grow even faster.

Home equity matters because it’s more than just a number on paper — it can become a powerful financial tool. Homeowners sometimes use equity to fund renovations, consolidate debt, help cover large expenses, or use it as leverage when buying and selling at the same time.

That said, equity isn’t liquid cash sitting in a bank account. To access it, homeowners typically need to refinance, sell the home, or use a loan product designed to tap into equity.

Understanding how equity works helps homeowners make smarter decisions about timing a sale, planning upgrades, or preparing for their next move — especially in markets where home values are constantly shifting.

Home Equity Calculation Example

On average a home will appreciate 3% a year — that’s a pretty normal expectation.

So let’s say (for ease) your home is worth $400,000 (which is actually the average price of a single family home in Billings proper right now).

Your home is 400,000, so 3% is 12,000.

So on a normal scale your home should be worth 41,2000 at the end of the year, given you didn’t do a marilyn manson style reno (shhhh I know..you would never) .

That’s pretty good right? Well, get this. 

Last year, the average homeowner gained $56,000 in equity… in one year. 

Raise your hand if you would agree that they understood the assignment??? 

When you think of homeownership, it’s very likely that you first think of the non-financial benefits, safety, security, the backyard you can’t wait to host in, or being able to have that dog you bought in college that your parents said not to (just me??? 🤓)

But how often do we think of the financial gain that comes with owning property? 

TBH not surprised, as you might be thinking about what this house is costing you at the closing table rather than what you could be gaining. 

Well let me sprinkle a little love on those feelings and brighten your day. 

Home equity is defined as the current value of your home minus what you owe on the loan.

As home values increase, your equity will too.

That’s exactly what’s happening today. Inventory can’t keep up with buyers demand, so now there are bidding wars & multiple offers, appraisal waivers oh my. All of these variables drive prices up, and for the homeowner, so does the equity.

How To Calculate The Equity Of Your Home

If you were going to do quick math to determine your home equity, you will need the following items: 

• Your current loan balance — using the balance on your statement is fine here because we’re just looking for a rough estimate. If you were selling & ordering a payout, add one more monthly payment to your balance & that would be a more accurate payout. 

• Your current home value — use this Home Evaluation Tool to get close. The best way to get exact numbers would be to contact your Realtor and get a market analysis done. 

That’s it! Now, here’s the formula to calculate the equity of your home:

CURRENT HOME VALUE - YOUR LOAN BALANCE = EQUITY IN YOUR HOME

Simple simple simple. 

As a homeowner, equity doesn’t only build your wealth it also opens doors to achieve other goals. That money could fuel your next move, it could be a down payment on another property, it can also be pulled out and used for home improvements - the opportunity is endless really! 

Whether you’re a current homeowner or you’re ready to become one, it’s important to know how equity works and why it matters. 

Home Equity Numbers in 2021

While the average homeowner saw an increase of $56k this year, Montana specifically saw an average of $68k according to REALTOR Magazine.

Definitely the high middle of the country - with states like California, Hawaii & Washington hitting triple digits or getting fairly close. Yep…that’s right.

California had the highest amount of equity gained during 2021, averaging $119k. But I thought they were all leaving?! 🥴 Turns out this truly is a nationwide market. 

Home price growth hit the highest level in more than 40 years making this a record year for equity gain. 

So what’s going to happen in 2022? That’s the magic question!

Current trends aren’t showing any sign of a slow down. Experts are predicting another 5% increase in pricing on a nationwide level.

Here’s what we know: these prices were built on strong equity. It will continue to rise as will interest rates which will balance it out. It will not reverse. I’m not about absolutes, but the data drives this notion. Our market is strong and it will continue on. 

Again if you’re wanting to calculate how much money you made in your sleep last year, click here and get your rough estimate. I bet it makes you happy! 😉