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Last Updated: Tuesday, 16 October 2007, 15:53 GMT 16:53 UK
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Q&A: Equity calculator
To find out how the equity calculator works and an explanation of some of the terms, use the links below or scroll down the page.

WHAT IS THE EQUITY CALCULATOR?

The calculator allows you to work out how changes in average property prices could affect the amount of equity you have in your home.

It estimates what the value of your home would be after one and three years and the equity you would have, based on a number of variables.

These include the current value of the property, the mortgage outstanding on it and the yearly rise or fall in the market.

Entering different figures into the calculator allows you to see how the equity would vary if the size of your mortgage changed, or the market rose or fell by different amounts.

It is intended to be used as a guide only.

WHAT IS EQUITY?

Equity is a term used to describe the value of a property over and above the amount owed on it. For example, somebody with a home worth £250,000 and a mortgage of £150,000 could be said to have equity of £100,000.

In contrast, negative equity occurs when the value of a home is less than the amount of money owed on it. For example, somebody with a home worth £300,000, but a mortgage of £325,000 has negative equity of £25,000.

HOW SHOULD THE CALCULATOR BE USED?

Enter the current value of your property and the mortgage outstanding on it. Then enter a figure for the yearly percentage change in house prices you expect, clicking the fall or rise button as appropriate.

Click on the calculate button to see how much your property would be worth after one year and three years.

Displayed below will be the amount of equity you would have after one and three years. A green background indicates that the balance is in your favour, while a red background shows that you would be in negative equity.

The equity amount does not include any reductions in the size of a repayment mortgage.

IS THE EQUITY CALCULATOR ACCURATE?

The equity calculator is intended to be used as a guide only and not as a basis for making any financial decisions.

The actual rate of change in the value of a property is likely to fluctuate and will vary between properties.

For simplicity's sake, the equity value is based on an interest-only mortgage and does not include any payments made on a repayment mortgage.

Including these payments would increase the amount of equity in a home.

WHAT DOES "CURRENT PROPERTY VALUE" MEAN?

Current property value refers to the price the home would fetch if it was sold.

To get an idea of the average cost of a home in your area, use the price guide below.

WHAT DOES "MORTGAGE AMOUNT" MEAN?

Mortgage amount refers to the outstanding balance on the loan used to purchase a home.

It is not the same as the initial value of the loan, as most people will have reduced the size of their mortgage by making regular repayments, unless they have an interest-only mortgage.

WHAT DOES "YEARLY RISE OR FALL" MEAN?

Yearly rise or fall refers to the percentage by which the price of an average home is expected to change.

For example, somebody with a £200,000 home which they expect to be worth £250,000 in 12 months' time, is predicting a 25% rise.

Property price trends are closely watched by the housing industry, with recent figures and predictions for the future often released through the media.

WHY DOES THE CALCULATOR SHOW ONE AND THREE YEAR FIGURES?

The calculator shows the predicted value of a property and the amount of equity held after one year, to show the short term effect of rising or falling prices.

It also includes a three-year figure to show what the impact would be in the future, should the trend continue.

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