How to Calculate Your Mortgage Equity and Principal Payments

When it comes to mortgages, understanding both the equity and principal payments can be tricky. This guide will give you the know-how you need to accurately calculate those payments for your mortgage.

First and foremost, it is important to understand what equity and principal payments are. Equity is the difference between the current market value of a home and the outstanding balance of the loan. In other words, it is the amount of money you own in the home. Principal payments are the amount of money paid against the original loan balance.

Now that you understand the basics, let’s look at how to calculate your mortgage equity and principal payments.

Calculating Equity:

The first step in calculating your equity is to determine the current market value of your home. This can be done by taking the average of the appraised value and the estimated market value. Once you have that number, you can subtract the outstanding loan balance from it to determine your equity.

For example, if the appraised value of your home is $200,000 and the estimated market value is $195,000, the average of those two numbers is $197,500. If your loan balance is currently $150,000, your equity would be $47,500.

Calculating Principal Payments:

Calculating your principal payments is a little more complicated. To do so, you will need to take your current loan balance and subtract the amount of the payment you recently made. This will give you the amount of the principal that was paid.

For example, if your loan balance is $150,000 and you recently made a payment of $1,000, the amount of the principal that was paid would be $750 ($1,000 - $250 = $750).

Conclusion: 

Calculating your mortgage equity and principal payments can be tricky. However, by following the steps outlined in this guide, you should be able to accurately calculate them both. By understanding your equity and principal payments, you can better manage your mortgage and make informed decisions about your home.