Home equity can be calculated by subtracting the current loan balance from the current home value, according to SFGate. Home equity percentage can be determined by dividing the home equity by the home's current value. An experienced professional appraiser should be used to determine a home's current value.
Individuals may want to know how much equity their homes have so they can explore refinancing options, states Bank of America. The more equity a home has, the more refinancing options are available to the homeowner. Lenders also use equity to determine the loan-to-value ratio and whether a loan application can be approved. Loan-to-value ratio is also used to determine if the applicant needs to pay for private mortgage insurance.
When gathering current loan balances, homeowners should get in touch with their equity line lenders and mortgage lenders, notes Bank of America. Besides making these contacts, individuals can also look on their most current loan statements or online accounts to determine how much they owe on their balances.
Homeowners can reduce their loan-to-value ratios by consistently paying down the mortgage principal, which is done by making monthly payments, according to Bank of America. It's a good idea to pay more than the monthly requirement to reduce the loan principal faster, but homeowners should ask their lenders if extra payments might incur prepayment fees.