Tips and tools to calculate your home equity and work out how much of your mortgage is left to pay
Mortgage payments often make up a significant amount of a homeowners monthly expenses so paying it off can be a great relief. Whether you’re selling your home, looking to make additional payments, or just curious about how much debt you have remaining, there are a few ways that you can find out your remaining mortgage balance.
Knowing how much remains to be paid also enables you to calculate how much home equity you have. This is very important to do this if you are thinking about selling your property or changing mortgages so you don’t run into any of the problems we discussed in our article about what happens to your mortgage when you sell.
How are mortgage payments calculated?
Unfortunately, working out how much you have left on your home mortgage is not as simple as it may at first seem. Even though your mortgage payments may be the same every month, it’s not as straightforward as just deducting the total of your payments from the amount you borrowed. And if you have made any overpayments, it can be even more difficult to work out exactly how much you still owe as your original payment schedule will have changed.
Mortgage lenders charge interest on the current balance, so the more you owe at any given point in time, the more interest you’ll pay for that month. This means at the beginning of your mortgage term, when you have the biggest balance, the payments you make will mostly go towards paying the lender’s interest, and only a small amount will be allocated towards capital payments for your home. But as your monthly contributions start to chip away at the balance over time, you’ll pay less interest and more capital, so the balance will reduce much faster in the latter part of your mortgage term.
Below is an example of how the same monthly mortgage payment would be divided between interest and capital payments at different intervals during the mortgage term. You’ll see that in the first 5 years (60 months), less than half of the payment goes towards the mortgage balance, but in the last few months, almost all of it does.
Mortgage: £350,000 at 3%* Term: 30 years (360 months)
Total: 360 monthly payments of £1,475.61
*Assumes the interest rate remains the same throughout the full term.
If you have an interest only mortgage, your balance will be a lot easier to calculate as it will be the same as the original loan, minus any additional payments you’ve made. If you are not making any additional payments, the level of equity is very dependent on whether the property's value goes up or down, so there is a much greater risk of falling into negative equity with this type of mortgage.
How to check your mortgage balance
You can usually find out your mortgage balance by looking at your latest statement. It should be labelled clearly as ‘Statement Balance’ or ‘Account Balance’ but different lenders can have different names for it, such as ‘Principal Balance’ or ‘Outstanding Principal’. As many lenders only send out their statements annually, the balance may not be all that up to date. If you’ve made several payments since your last statement and you want a more accurate figure, you may need to phone them up and ask for an up-to-date balance or check your online account if you have one.
If you’re trying to find out the balance of your mortgage because you are planning to sell, you will want to ask your lender for a mortgage redemption statement. A redemption figure contains not only the balance of the loan, but also any additional charges, such as an exit fee for paying off the mortgage early. Some lenders may include this information on their statement as standard.
How to calculate your remaining mortgage payments
There are many websites with mortgage calculators that can be useful for working out roughly what your remaining mortgage payments and balance are, such as this one by Propillo. You could also try downloading this handy mortgage calculation spreadsheet which you can tailor to your own needs. These mortgage calculators should only be used as a rough guide though, since they make various assumptions, such as the interest rate staying the same throughout the mortgage term – in reality it probably won’t be.
How to work out how much equity you have in your house
Your equity is the 'stake' or 'value of ownership' that you have in a property, and it depends on the size of your deposit, how much of your mortgage you have paid off, whether the value has gone up or down, and if any other borrowing has been secured against the property.
To calculate the amount of equity you have in your house, you will need to know two numbers:
The amount of debt secured against the property (the balance of your mortgage and any other secured loans)
An accurate valuation of your property
Once you have both of these figures, you can find out how much equity you have using this simple sum:
Property Value − Secured Debt = Equity
Bear in mind the current market value of your house may be different to the amount that you paid for it. There are various myths and misconceptions about valuing a property and these will give you a false impression about your level of equity. If you are looking for a reliable valuation figure, we recommend you read our article on the best ways to find out how much your house is worth.
If you have plenty of equity in your home, you will have a lot more options when it comes to moving house or changing mortgages. However, if you find that the value of your home is less than your remaining mortgage balance, you may have some difficulties. If this is the case, check out our guide to escaping negative equity.