Calculating Home Equity
I'm working on a method to track my Net Worth on a monthly basis and display my personal finance key indicators on a dashboard. Part of this process is figuring out a way to calculate Home Equity. The factors I'm taking into consideration are discussed within this post.
Here's the definition of Home Equity that I'm working with: The current market value of a home minus the outstanding mortgage balance. Essentially, home equity is the amount of ownership that is building up by the holder of the mortgage through payments and appreciation.
So that gives me 2 data points:
1 - Current Value of my Home
2 - Outstanding Mortgage Balance
Excel has a Future Value function that can help me guesstimate the current value of my home. The syntax for the FV function is:
FV( interest_rate, number_payments, payment, PV)
Plugging the following numbers into this function should give me the value of my home.
Next, I need to log on to Citimortgage in order to find out my current outstanding mortgage balance (it's $143,433.46).
So, the calculation of Home Equity looks like this.
(156,632.94 - $143,433.46) = $13,199.48
Is 1% annual growth a good estimate? I don't know. I feel like I'm being very conservative with that estimate. I'm not sure how to derive a better annual growth rate.
That's most likely my most difficult metric to calculate. I should have my Net Worth Tracking tool and Dashboard complete next week.
Read about my other financial goals for June.
Thanks for reading!
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1% is probably fine for today's climate. You can always revise upward/downward as you get more concrete numbers.
Having said that, I tend not to include my residence's value in my net worth. Uncle Sam doesn't really care what my house is worth until I sell it. I'm probably not going to move unless strongly persuaded, since I'm priced out of most local housing now (homes around here have gone up 6 figures since I bought in 2001). Plus, my wife would dig in her heels -- she likes where we are. So, my house is not really something that I could sell right now -- I need it. Sure, I can borrow against it some more, but I still need the house, and now I owe more. The value of the house really isn't in the equation for me right now. Plus, I'd feel a lot more of a sense of accomplishment being in the black this way than by including my house's value. It's a higher bar for comparison.
^ Thanks for your comments! Keeping home equity out of the Net Worth equation does make sense. I like that you said "right now" because you see that the situation may change in a way that you would feel comfortable adding home equity. I'm going to keep it in - if for no other reason than to remind myself that purchasing a home was a good personal finance decision.
^ Thanks for your comments! Keeping home equity out of the Net Worth equation does make sense. I like that you said "right now" because you see that the situation may change in a way that you would feel comfortable adding home equity. I'm going to keep it in - if for no other reason than to remind myself that purchasing a home was a good personal finance decision.
^ Thanks for your comments! Keeping home equity out of the Net Worth equation does make sense. I like that you said "right now" because you see that the situation may change in a way that you would feel comfortable adding home equity. I'm going to keep it in - if for no other reason than to remind myself that purchasing a home was a good personal finance decision.
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