Wednesday, 5 December 2007

How to calculate how much of the house you own?

The other day, I wrote an article on visualising how much of your house you own. I am currently trying to work this out. The simplest method is take price you paid for the house, minus the mortgage you took from the bank to help you buy the house.

% house own = ( house price - mortgage ) / house price

If I am going to do this correctly, it will tracked over a long period of time, probably in terms of years, so we need to factor two major affects into the calculations.
  1. Appreciation of the house price
  2. The movement of the interest rate on your mortgage.
The appreciation of the house price should be adjusted on a yearly basis. However, if the area of your house changes considerably, like it did in the inner suburbs of Melbourne about 5 years ago when it changed by 20% per year, the adjustment period may need to be smaller, like every 6 months.

2 comments:

Roland Millward said...

Surely the amount that you 'own' as equity is the Current Value of the property minus the mortgage?

capitalwest said...

Yes but what's important is not just the dollar amount but the
percentage you own. This plays a big factor when it comes to
refinancing and getting approval from banks. It can also play an
important role in how many lenders you will have to choose from.
The more lenders you have to choose from the better your chances
of getting a beter rate will be. As far as lenders go, it's the
LVR (loan to value ratio) that counts, and that needs to be a
percentage.

Melbourne Mortgage
Brokers